Primary Residence query

[Blik]

Hi I have a query about what constitutes a primary residence in terms of SARS classification. I know there are three basic rules: it has to be a house etc, a person has to own part of it and thirdly the possibly contentious one "The individual with an interest in the residence, beneficiary of the special trust, or spouse of that person or beneficiary must ordinarily reside in the home and use it mainly for domestic purposes as his or her ordinary residence. "

Now is the term "ordinarily reside" open to interpretation? For example my wife and I live in accommodation provided by a school, to whom we pay occupational rent. We have a single house in town, but choose to live in the school accommodation since it is on campus. I don't rent the house out, but we don't actually live there. Can I consider this my primary residence? Or does the term "ordinarily reside" mean that you have to actually be living in the house for any period of time?

I would really appreciate any thoughts, particularly from people who might be in a similar situation. I'll do some research and post what I find.

[Preston]

My understanding is that your house in town is not your primarily residence. You may get a pro-rata exemption of the primary rebate if you sell.

[mullet_fish]

I think you will be OK as you are not renting it and your situation sounds "temporary" ...but don't take my word for it!

[Blik]

My limited bit of research seems to indicate that the definition of "ordinarily reside" has not been tested in SA courts yet. But a similar sort of case in Aus, seems to indicate that so long as your place of abode has been determined (FICA, municipal bills etc???), then presence or absence from your place of abode does not matter actually; implying you can live / rent elsewhere and so long as the house is your first and is your registered place of abode, then CGT wont apply if you sell. Unless I read that bit incorrectly.

[Preston]

Capital gain tax will not apply if you sold your house for R2m and your primary rebate is R2m (i stand corrected at this rate), however if you do not occupy that house, then the R2m rebate is pro-rated to the period in which you actually lived in that house and you could possibly be paying CGT.

[Blik]

Hi Preston, value would be well less then 2mill. But still querying the "occupy" issue. If you actually have to live in the house, then the rule does not cater for migrant-type workers who only own one house, but are forced, by work, to live elsewhere. What about a civil engineer for example. He might own a house in Cape Town, but is required to live on site (Lesotho Highlands Water Project) for a year or more.

[Preston]

SARS definition of "Home"- is the place of natural dwelling.

[partridge]

My nephew heads up a large multinational which sells pumping equipment. He's a bright lad with a string of degrees but I am not going to him to consult about my heart. As it happens I have the professional qualifications to answer this question but I won't - simply because you have no recourse ( and I have a problem) if I am off the mark. Do yourself a favor. 1.For a start: Go and read SA Income Tax Guide 2012/3 by Divaris and Stein, paras 21.13 and others refer and then 2. Finally and MOST IMPORTANTLY go and consult your accountant who deals with this every day of the week - for a living - and who is accountable to you for his advice.

[Blik]

Hi Partridge - thanks for the reply - am currently consulting my accountant. But am always keen to research myself, and will look up your reference. It helps me realise my own accountability. There is no surety that my accountant will get it right. Its mainly an academic query at the moment.

[partridge]

Good to hear that you are talking to your accountant - and remember you do have recourse if he gets it wrong.

[Preston]

Please let me know if i was correct?

[Rams]

Look what google told me:"...where the place of abode has been established, physical presence or absence from it does not change its status. It would require a change of intention by the taxpayer to change the status. The duration of residency alone does not determine permanence..." Blik, when you bought the house, if you stated that it was a primary residence, then the status remains, even if you dont live there.

[Preston]

Blik, is your initial question directed at CGT implication?

[Blik]

Yes it is - but its hypothetical at the moment, since I am renting the house out. But it is for sale and I am trying to find out if, when the tenant leaves at the end of this tax year, if I can consider the place my primary residence, and if sold hence drop the CGT tax.
I am looking in the guides you recommend.

[mullet_fish]

the story has changed now ? ..you are renting it out...different set of rules...

[BlueDolphin]

http://www.privateproperty.co.za/news/property-tips/the-ins-and-outs-of-capital-gains-tax.htm?id=226...

[Blik]

small technicality there - by the time I want to sell it I wont be renting it out - it will be in the new tax year. I know if I be renting it, I cannot claim as primary residence....I just thought that might confuse issues around the query....anyway sorry for confusion.