Most Read Contributor in South Africa, September 2016
The Davis Tax Committee ("DTC")
released its much-anticipated second (and final) interim report
(the "Report") on estate duty on 24
August 2016. The Report has been published with amendments taking
into account the public's comments that were submitted in
respect of the first interim report.
The most significant recommendations of the Report pertaining to
estate duty and donations tax are highlighted below. Many of these
recommendations involve a comprehensive overhaul of the various tax
exemptions applicable to transfers of assets between spouses.
The Report recommends that the primary abatement should be
significantly increased from ZAR3.5-million to ZAR15-million for
all taxpayers, irrespective of their relationship status, and that
the inter-spouse abatement in the Estate Duty Act should be
The Report notes that the primary abatement has not been
increased since 1 March 2007, thus allowing a substantial element
of fiscal drag to enter the estate duty system. As a result, there
is an urgent need for a generous increase in this abatement.
The Report also recommends that the rate of estate duty should
be increased from 20% to 25% of the dutiable value of a deceased
estate that exceeds ZAR30-million, thus introducing a progressive
system of tax rates for estates with a net dutiable value of more
than ZAR15-million and mitigating the potential loss of estate duty
collections in light of the other estate duty recommendations.
Capital gains tax
The Report recommends that if the DTC's estate duty
recommendations are implemented, the capital gains tax rollover
provisions applicable to the transfer of assets between spouses
should be repealed and replaced with an increased exemption on
death of ZAR1-million (currently ZAR300 000).
The Report recommends that if the inter-spouse abatements and
exemptions are removed for estate duty and capital gains tax
purposes, the inter-spouse exemption within the donations tax
system should also be removed, except for an exemption for the
reasonable maintenance of the taxpayer and his/her family.
In this regard, the Report recommends that the inter-spouse
donations tax exemption should not apply to the transfer of assets
that would be subject to capital gains tax. In addition, the Report
recommends that, rather than imposing a monetary threshold to limit
the tax-free transfers of cash between spouses, the donations tax
exemption for cash transfers should be limited to cash donations
which do not create an enduring benefit for the recipient spouse,
ie donations of cash between spouses would remain exempt from
donations tax to the extent that such amounts are expended in the
maintenance of a family within one year of receipt.
In addition, it is recommended that assets transferred between
spouses in terms of a divorce order should be subject to an
exemption similar to the death benefit exemption for estate duty
and capital gains tax, but that the use of this exemption should
reduce the taxpayer's available death benefit abatements or any
subsequent divorce exemptions.
Another recommendation of the Report is that donations made in
anticipation of death should no longer be exempt from donations
The Report acknowledges that the DTC's recommendations are
advisory in nature and any legislative amendments will be subject
to the normal consultative processes and parliamentary oversight.
In addition, as agreed with the Minister of Finance, the DTC will
submit a further report on a possible wealth tax for South Africa.
It is clear that DTC's recommendations will have significant
implications for personal planning and local trusts if they are
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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The expansion of the West African regional market to foreign investors, and the search for emerging markets has led to a continuous increase in business mobility and cross border investments with Nigeria.
Effective collaboration amongst government agencies, automation of processes and capacity building by tax authorities have always been identified by stakeholders as strategies for achieving an efficient tax system.
The major objective of the waiver is to promote voluntary compliance and consequently generate revenue for government which otherwise, could have been lost.
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