Estate Duty Flashcards
Upon the death of a taxpayer, a new taxpayer comes into existence, namely the deceased estate. In order to finalize the affairs of the deceased there are three computation which must be calculated, what are they?
- The tax calculation in terms of the Income Tax Act for the deceased person
- The tax calculation for the deceased estate (the new taxpayer) in terms of the Income Tax Act
- The estate duty liability in terms of the Estate Duty Act
What constitute a valid will?
- Must be in writing
- Must be signed by the testator at the end thereof
- In the presence of two competent witnesses
- The witnesses must attest to the signature of the testator and sign the will in the presence of the testator
- If the will consists of more than one page, each page other than the last must be signed by the testator and the same two witnesses anywhere on that page.
What is marriage in community of property?
A marriage is automatically in community of property unless the equivalent of an anti-nuptial contract is concluded prior to the date of the marriage. When a couple gets married in community of property, the two separate estates are consolidated into one. Although each party can still have a separate estate from sources such as inheritance and awards for personal damage inflicted, the husband and wife now have one estate. They are liable to the outside world for debts incurred after the commencement of marriage, and they each have equal power to bind the joint estate, except for the purchase and sale of immovable property or to enter into a credit agreement
What is marriage out of community of property?
For a marriage to be cut of community of property, the prospective husband and wife must conclude an ante nuptial contract (ANC) in front of an attorney who is qualify notary. There are two separate systems for the couple who wants to marry out of community.
What is marriage out of community of property without the accrual system?
The marriage out of community of property without the accrual gives recognition to the fact that the spouses each has his/her separate estate and for the purpose of marriage, there will be no community of property profit or loss between the two of them
What is marriage out of community of property with the accrual system?
The marriage is still out of community. However, the net value of each spouses’ estate is calculated as at date of the marriage. At the dissolution of the marriage due to death or divorce the closing net value of each estate is again calculated. It is then established which spouse’s estate showed the largest accrual. The party whose estate shows no or a smaller accrual is entitled to half of the difference of the accrual.
What will be included in the person’s return for the period prior to death?
All income which was received or accrued prior to the death and all deductible expenditure and allowances incurred prior to death.
Certain types of income will be deemed to have accrual prior to death:
1. Gross income - employment lump sum
2. Lump sum payments from retirement funds
3. Capital gains - the deceased is deemed to have disposed of certain of his assets for market value at the time of death
Note that if the period of assessment is less than a full year the rebates will have to be apportioned.
At what rate is the deceased estate?
The deceased estate is taxed at the rates applicable to natural persons but is not entitled neither to the primary rebate nor the interest exemption.
What amendments has made to the Income Tax Act in terms of deceased estate?
The definition of person includes a deceased estate.
The definition of representative taxpayer includes the executor of a deceased estate.
Any income received by or accruing to the executor which would have been income in the hands of the deceased shall, if such income has been derived for the immediate or future benefit of any ascertained heir or legatee, be deemed to be income of such heir or legatee and if not be deemed to be income of the deceased estate.
Any deduction or allowance which relates to any income which is deemed to be income of an heir or legatee shall be deemed to be a deduction or allowance of such heir or legatee.
A liability for tax shall not arise in both the heir’s hands and the estate in respect of the same amount of income, I.e. the possibility of double taxation is prevented.
Discuss capital gains on death.
The deceased is deemed to have disposed of his assets for an amount equal to the market value on the date of death. This will give rise to a capital gain in the deceased’s hand immediately before his death.
Where the assets is transferred directly to the estate, the deceased estate is deemed to have acquire the assets for a cost equivalent to such market value as at the date of death of the deceased person.
Where an asset is disposed by the deceased estate to an heir or legatee, the deceased estate is deemed to receive proceeds equal to the above mentioned base cost. I.e. no capital gain or loss arises and the heir or the legatee is deemed to have acquired it at the same base cost.
Where assets are disposed of by the executor otherwise than to heirs or legatees a capital gain or loss arises in the estate. The gain or loss is calculated as the difference between the selling price of the asset and its value at the date of death.
When is estate duty payable?
Estate duty is payable in respect of the estate of every person who dies and who was ordinary resident in the Republic at the date of his death.
On what assets are the estate duty payable?
SA resident - worldwide assets
Non-resident - SA assets
What is the summary of the estate duty calculation?
Property Plus: deemed property = gross value of property Less: deductions = net value of estate Less: abatement Dutiable amount of the estate Estate duty is charged on the dutiable amount of the estate, at a flat rate of 20%
What constitutes an estate?
An estate consists of all the property and deemed property of a person at the date of his death. The property means any assets.
What doe property means?
It means any right in or to property, movable, or immovable, corporeal or incorporeal. It includes any interest or right in an assets, fiduciary or usufructuary interests, as well as the right to an annuity.
