On 24 August 2016, the Davis Tax Committee ("DTC") released its long-awaited report on estate duty, which was submitted to the South African Minister of Finance ("the Minister") for consideration on 28 April 2016. The report takes into account public commentary and submissions received following the release of the committee's first interim report.
As noted by the DTC, the committee is advisory in nature, and will merely make recommendations to the Minister of Finance. After reviewing the report, the Minister will take into account the recommendations. As is the process with all tax policy proposals, these recommendations are subject to the normal consultative processes and review by Parliament.
The DTC is expected to submit an additional report on a possible wealth tax for South Africa, as agreed to with the Minister. Both reports will have significant and far-reaching implications for persons planning their affairs, especially in respect of estates and trusts.
The report makes, inter alia, the following recommendations:
- estate duty: the primary abatement should be increased to ZAR15-million (from ZAR3.5-million).The estate duty rate should be increased from 20% to 25% in respect of estates exceeding ZAR30-million.
- donations tax: the inter-spouse exemption in respect of donations should be removed, subject to a reasonable maintenance exemption.
- capital transfer tax: an investigation should be conducted into the implementation of wealth taxes in South Africa.
- estate duty and trusts: in respect of interest-free loans or low-interest loans to trusts, the holder should be subject to annual taxation on interest paid on the loan account (at least the official rate of interest) and the holder of the loan should be deemed to be in effective control of the trust for estate duty purposes.
- vested trusts: donors and beneficiaries of all vested trusts should be subject to stricter disclosure requirements and risk profiling from the South African Revenue Service ("SARS").
- discretionary trusts: income and capital gains of discretionary trusts should be taxed in the hands of the trust at 41% for income and an effective 32.8% for capital gains.
- foreign discretionary trusts: SARS should establish a separate investigations unit "to thoroughly and comprehensively examine foreign trust arrangements".
The committee also released a report on macro analysis of the tax system and inclusive growth in South Africa and a report on small and medium enterprises' taxation considerations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.