In South Africa, it’s now 28%, but you can pay less than that if you allocate more income to members at a lower rate, thus reducing profit. See Fixed Accounting for more.
An obvious starting point in our first of a new series of Trusts and Estates Alerts, is to consider the importance of having a well-constructed, valid Will.
If you, at the time of your death, have no Will, or your Will is invalid or does not deal with your entire estate, you are said to have died intestate. It is estimated that more than 50% of South Africans die intestate every year
Despite the horror stories, if you die without a Will, your assets are not forfeited to the state, however the distribution thereof is regulated by statute as opposed to your own directions, as you would have set out in your Will.
The relevant Act that regulates the devolution of your assets should you die without a Will is known as the Intestate Succession Act, 81 of 1987.
The Act sets out a fixed formula that is applied to determine who inherits your estate and in what proportion.
The Act is based on – excluding benefits to a spouse – a system of passing benefits to the blood family of the deceased. The general principle being that those family members closest to the deceased in terms of the bloodline, stand to inherit first.
So for example, if the deceased is married, but does not have children, the spouse will inherit the entire estate.
If however the deceased does not have a spouse at the time of his death, but has children, the children will inherit the entire estate in equal share.
Make sure all your registrations are up to date before you die: Register
Accordingly, if the taxpayer renounced a right for the benefit of a third party for no consideration, it will be difficult for the taxpayer to discharge the onus that he did not have an intention of generosity or liberality. As a result the taxpayer will in all likelihood be liable for donations tax which is levied at 20%. It should, however, be noted that if the taxpayer does not settle the donations tax liability, the South African Revenue Service, can hold the done personally liable and recover the outstanding donations tax from such a person.
In addition to the abovementioned donations tax implications, the taxpayer needs to establish whether the transaction has any CGT implications.
In terms of the Eighth Schedule to the Act, a “capital gain” arises when the proceeds received on the disposal of an asset is greater than the base cost of the asset.
The meaning of an asset for purposes of the Eighth Schedule to the Act is defined widely and includes “property of whatever nature, whether movable or immovable, corporeal or incorporeal, excluding any currency but including any coin made mainly from gold or platinum as well as a right or interest of whatever nature to or in such property”. The meaning of a disposal on the other hand specifically provides for the inclusion of the waiver or the renunciation of a right. The renunciation of the right by the taxpayer would constitute a disposal of a capital asset and the taxpayer will be liable for CGT on the difference between the proceeds received, and the base cost of the right. If the taxpayer waived the right for no consideration, the proceeds would be nil.
However, in terms of paragraph 38(1)(a) of the Eighth Schedule, where a person disposes of an asset by means of a donation, or for a consideration not measurable in money, or to a connected person for a consideration which does not reflect an arm’s length price, the proceeds will be deemed to be the market value of the asset on the date of the disposal.
If an asset is disposed of by means of a donation, such disposal is deemed to have taken place at market value for CGT purposes and the taxpayer will be liable for CGT on the difference between the market value of the right and the base cost thereof.
Accordingly, unless careful consideration is given to the construction of a transaction, the good intentions of a taxpayer can have adverse tax consequences. It should, however, be noted that none of the tax implications set out above will be applicable if the taxpayer makes a donation to an approved Public Benefit Organisation.