By “swallow” I’m referring to people who live in the Northern Hemisphere and travel South every year (typically to a coastal town) to enjoy our summers and avoid the worst of their winters.

Now, interestingly, I asked myself the title question while talking to a South African who has lived and worked in Abu Dhabi for 17 years and heads South during the height of their summer to cool off in our winter weather!

He and his wife are planning to build a “swallow’s nest” in Mossel Bay. It will not be rented out and will be used only by them when they fly South.

So, I wondered, since it will be their only residence in South Africa, and if we kept ownership in their names rather than in a trust (which was the subject under discussion), would it qualify as a primary residence?

Here’s what the Income Tax Act says:

Eighth Schedule para 45

(4)  Subparagraph (1) (b) does not apply where a natural person or a special trust disposes of an interest in a residence which is or was a primary residence, and that person or a beneficiary of that special trust or a spouse of that person or beneficiary—

(a) was not ordinarily resident in that residence throughout the period commencing on or after the valuation date during which that person or special trust held that interest

So, what does “ordinarily resident” mean?

Here’s how I explained it in another article:

• Are you ordinarily resident in South Africa?
  • Is this essentially your home? Various tests will be applied. Typically, it is your home if
    • it is the place to which you will return after your wanderings
    • you have a residence here
    • your children or your spouse are here
    • your belongings are stored here
    • this is the base from which you wander.

Clearly, my man in Abu Dhabi and all the other swallows that visit us each year (most of them in summer) have a residence here and some of their belongings, furniture for example and often a boat and a car are stored here, so you might argue that they are ordinarily resident, but if they were, they would be taxed here on their worldwide earnings. And none of them are.

Are they ordinarily resident in their other home (in Abu Dhabi, for instance) despite living in South Africa for, say, three months a year?

Yes, in my view they are because their other home is the base from which they wander.

So, I don’t think they are (or would want to be considered as) ordinarily resident in their South African dwellings and would not, therefore, benefit from the R2m capital gains exclusion if they sold.