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Capital Gains Tax

Unfortunately, the advent of Capital Gains Tax, at the outset, caused much of an uproar, with its calculations, Time Based Apportionments if there is no base costing on the asset(s) in question. However, the calculations are quite simple. It is when the state of a deceased person is administered where all red lights should be switched on! The deceased estate itself will take on the asset at market value and pass it on to the beneficiary(s) (in terms of the Will of the deceased in the case of a Testate Estate or the Laws of Intestate Succession in the case of an Intestate Estate, whichever is applicable) and that/those beneficiary(s) take on the value of the asset(s) at the value reflected in the Liquidation and Distribution Account.

If an asset is sold by an executor/tri, the estate itself is subjected to Capital Gains Tax. In cases where assets are merely transferred into the name(s) of the beneficiary(s), the beneficiary will take on the asset at its Market Related Value (MRV) at the date of death of the deceased person.

However, when the asset is sold by the executor, the beneficiary(s) no longer receive the asset, cash is handed to the beneficiary(s).

In terms of the Income Tax Act, as amended, the deceased’s Income Tax MUST be finalised by the executor of his/her estate to the date of death.The executor is, in terms of current legislation, under obligation to register the estate itself for Income Tax purposes, declaring any income& possible expenditure post date of death to date of payment of income to the beneficiary(s) to the SA Revenue Service.

However, a directive issued by SARS has lifted this responsibility slightly in that the executor may merely declare post death income and expenditure to SARS by way of a Cash Statement, which document is also handed to the beneficiary(s) upon finalisation of the estate by the executor. This is a move by SARS to alleviate an administrative burden.

With the advent of Capital Gains Tax, in cases where assets are sold by the executor, he is now required, by Law, to register the estate for Income Tax purposes, calculate any gains/losses, and complete the required form IT12 and lodge this as well with SARS, together with the returns as at the date of death in order to finalise the deceased’s Income Tax liability.

Remember … this is over and above any other death tax, such as Estate Duty. The registering of the estate as a tax payer in terms of the Income Tax Act is a further delay that beneficiaries in deceased estates must expect. It is therefore of utmost importance to plan not only your estate insofar as liquidity is concerned, but also to plan your Will accordingly. Selling assets directly from the estate, will cause a delay with the administration of your estate.

HAVE YOU UPDATED YOUR WILL?