Most Read Contributor in South Africa, September 2016
The value of a usufruct (which is the right to use property and
enjoy it's profits without directly owning it) is often needed
to be calculated for purposes of taxes, for example:
for purposes of estate duty should a testator/testatrix
bequeath a usufruct over property to an heir;
for purposes of donations, tax should a usufructuary renounce
his/her usufructuary rights; or
for purposes of capital gains tax, should a property in respect
of which a usufruct is registered be disposed of.
In this regard, the value of a usufruct over a property
("the Property") is, broadly speaking,
calculated with reference to the life expectancy of the
usufructuary or the term of the usufruct (whichever is shorter),
the market value of the Property and the annual value of the right
of enjoyment of the Property ("the annual
The Income Tax Act No. 58 of 1962 and the Estate Duty Act No. 45
of 1955 ("the Estate Duty Act") provide
that the annual yield of a property means an amount equal to 12% of
the value of the full ownership of the property which is subject to
the usufructuary interest. However, where the Commissioner is
satisfied that the property which is subject to a usufructuary
interest could not reasonably be expected to produce an annual
yield of 12% on the full value of the property, the Commissioner
may fix such sum as representing the annual yield as may seem to
him reasonable in the circumstances.
Accordingly, in certain circumstances, the Commissioner may
accept a different percentage annual yield – should this be
supported by facts. It is therefore possible for a person to
provide proof that the Property produces or would produce a yield
of less than 12% per annum with reference to, for example,
information concerning the price at which related property in the
area is leased or a rental valuation prepared by an estate
In terms of section 5(1)(b) of the Estate Duty Act, should the
Property consist of books, pictures, statuary or other objects of
art, the annual value of the right of enjoyment thereof shall be
deemed to be the average net receipts (if any) derived by the
person entitled to such right of enjoyment of such property during
the three years immediately preceding the date of death of the
Furthermore, in C:SARS v Klosser's Estate 2000 (4)
SA 993 (C), 62 SATC 93 the court upheld the Commissioner's use
of an annual yield of 2.5% for listed shares. The court held that
the Commissioner was required to make predictions regarding the
future yield and that such predictions could only be based on the
relevant background facts – including the yield of such
shares at the death of the testator and prior thereto. It is
accordingly a factual question whether the assets within an estate
could be reasonably expected to produce a yield of 12%.
It is therefore a question of fact whether a specific asset may
produce an annual yield of 12%. Should, for example, a loan account
be interest-free, it would be difficult to contend that such an
asset produces a 12% annual yield.
It is accordingly recommended that, in determining the value of
a usufruct for tax purposes, careful regard be had to the relevant
background facts to determine whether a 12% annual yield would be
acceptable in the circumstances. It is important to adequately
consider such annual yield so as to ensure that excessive tax is
not inadvertently triggered.
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.
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