Published: January 2017
The Davis Tax Committee (DTC) published its second and final report on estate taxes on 24 August 2016. After submissions from the public on the first interim report were considered, several recommendations that may affect your estate planning were included in the final report.
Recommendations in the final report
The South African Revenue Service (SARS) should establish comprehensive records of all bare dominium and trust arrangements. This should include, but not be limited to, tax returns by all holders of part interests in property, regardless of their income level.
National Treasury should consider the possibility of extending the provisions of section 3(3)(d) of the Estate Duty Act, 45 of 1955, to include deeming provisions that identify 'deemed control' of a trust through a loan account between a trust and a 'connected person(s)', where the loan is not subject to interest or is subject to interest at below the official rate. This means the loan provides the lender with effective control over the trust. [However, this recommendation was not accepted by National Treasury. It opted to introduce a new provision in the Income Tax Act (ITA) to deal with interest-free loans – refer to our previous communication setting out further details on the new proposed section 7C as contained in the recent draft Taxation Laws Amendment Bill.
Revenue income from a trust must therefore be taxed in accordance with the definition of 'gross income' contained in section 1 of the ITA, unless a trust deed confers on its beneficiaries an indisputable and irrevocable vested right to both the capital and income of a trust. Capital income generated while assets are held in trust, on a basis other than a vested basis, must be taxed within the trust, up to the time of vesting or disposal as defined in paragraph 11 of the Eighth Schedule to the ITA.
The interspousal abatement should be withdrawn and replaced with a substantially enhanced primary abatement to ensure equitable treatment of all taxpayers.
The primary abatement – currently R3,5 million – should be increased to R15 million for all taxpayers, irrespective of marital status.
The estate duty rate should be increased from 20% to 25% of the taxable value of an estate over R30 million.
The capital gains tax (CGT) rollover provisions relating to interspousal bequests should be replaced with a generous death exemption of R1 million. The current exemption is R300 000.
There should be no interspousal donations tax, except for an exemption for the reasonable maintenance of the taxpayer and his/her family.
How could these proposals affect your estate planning?
Estate planning is a stocktaking exercise with the main purposes being to:
If National Treasury accepts the current proposals, it will be important for you to review your will and estate plan and make any amendments you feel are necessary. Some examples of how you may be affected are below:
We must emphasise that these are only recommendations and not official policy. National Treasury will consider the recommendations and if it finds them acceptable, they will be adopted into the normal budget and legislative processes that enable further public comment.
Please contact your relationship manager to schedule an appointment with a fiduciary specialist. We would be delighted to help you optimise your estate planning.
DISCLAIMER The Fiduciary Focus Newsletter is intended for general information purposes only and should not be construed as tax, legal or accounting advice. This communication is based on our bona fide interpretation of legislation, rules, regulations and publications. Nedbank Private Wealth provides estate and tax planning advice; however, we do not provide tax, legal or accounting advice and you are requested to consult a professional tax advisor or professional in this regard.
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