The introduction of capital gains tax on property has focused attention on
two difficult issues - whether to claim from the taxman for the use of a
home office and what to do about the profits realised from the sub-division
Gerhard Kotzé, CEO of the ERA South Africa property group says that
homeowners who are thinking about working from home or perhaps sub-dividing
their residential stands need first to ensure that they are fully aware of
the tax implications.
"In terms of the Small Office Home Office (SOHO) scenario, it's common for
homeowners to claim against their taxable income for a proportion of the
property they devote to business purposes.
"However, there has always been something of a day of reckoning as it were
when it comes to the sale of a property, in that the Receiver may claim back
from the owner the deductions made in previous tax years.
"While nothing in terms of tax law has changed in this respect, the added
consideration of Capital Gains Tax, when lumped together with the reclaimed
rebates for the use of home space for office purposes, could come as a shock
for the homeowner."
It will not necessarily be a "train smash", Kotzé says. "Because the first
R1-million worth of capital gain - that is basically the difference between
the purchase price of your home and its selling price - is exempt from CGT,
your primary residence is more attractive as an investment than the likes of
shares and many other investments when it comes to CGT.
"In fact there's an argument for fresh investment in your primary residence
- such as the addition of a home office - rather than in assets that are
fully subject to CGT.
"However, if part of your property has been used for business purposes and
you have been receiving a tax benefit from the Receiver as a result of that
usage, you do need to reckon on a portion of the capital gain on re-sale
In the case of sub-division, property owners need to take care to be seen by
the Receiver as having simply realized a capital asset by sub-dividing. "If
you are seen to have taken pre-meditated steps to develop the property, you
could be deemed to have traded in the land for profit," says Kotzé.
"The danger then is that you may find that all your future property
transactions are treated the same way and will attract higher tax.
Consequently, it is advisable for property owners to seek professional tax
advice before starting any sub-division procedures."