Question:
NT Kearney would like to know if a couple is married in community of property, whether a capital gain on an investment in the name of one partner is regarded as a capital gain accruing to both partners? In other words, can the capital gain be spread equally between the two partners, as is the case with interest earned, he asks. If the answer to this question is "no", he says, should investments which are likely to incur a capital gain when disposed of (for example, shares or unit trusts) be transferred to the partner who has the lower marginal tax rate?
Answer:
The South African Revenue Service (SARS) says where a partner who is married in community of property disposes of an asset, the disposal is treated as having been made in equal shares by each partner. The gain or loss is therefore spread equally between the partners. SARS says an exception to this general rule is the case where the asset was excluded from the joint estate, in which case the gain or loss is solely attributable to the partner disposing of the asset.
A partner in this situation, or perhaps a partner married out of community of property, may well be tempted to transfer the asset to the partner with the lowest marginal tax rate in order to take advantage of that rate. However, there are provisions in law that permit SARS to disregard the transfer in this situation and attribute the gain back to the partner who originally owned the asset.
Question:
AB Nieuwoudt wants to know what the position is with regard to liability for CGT on a profit of more than R1 million made on the sale of a primary residence registered in the names of both a husband and a wife, married in community of property? He asks whether the total profit will be divisible by two and whether the R1 million exemption will be available to both partners? Or is the R1 million exemption first applied and the residual profit then divided by two, he asks?
Answer:
SARS says where more than one person holds an interest in a primary residence, the R1 million exclusion is apportioned among the people holding the interest in the primary residence.
As an example, assume that the primary residence in this case has a base cost of R1.2 million and is sold for R3 million. The two partners are treated as having disposed of the property in equal shares and each will realise a capital gain of R900 000. The partners will also be entitled to an equal share of the primary residence exclusion and each will be able to exclude R500 000 of their capital gain.
The net result is that the partners will each include R400 000 in their aggregate capital gain for the year.
If there are capital gains tax issues you are unsure of, send your questions to us and we will publish the replies from the South African Revenue Service in this column. Send your questions to Personal Finance, PO Box 56, Cape Town, 8000, or fax (021) 488 4119, or e-mail [email protected]