The fiscal concessions available to “friends with benefits”
24 October 2012
Posted by: SAIT Technical
By PWC Tax Synopsis
Executive summary (SAIT Technical)
PWC looks at some of the tax concessions available to persons who are married and when a person would qualify as the spouse of another person. An important factor to determine is whether the union between the persons is intended to be permanent.
In particular, the tax system acknowledges the need to extend tax concessions to married couples and in some contexts, to defer the payment of tax until the death of the survivor, so that the latter's financial resources are not depleted by the death of the first dying. In South Africa, for example, capital gains tax in respect of assets bequeathed by the first-dying spouse to the survivor, is in effect deferred until the latter dies or disposes of those assets.
The extended statutory definition of a "spouse”
Such concessions are generally made available only to "spouses” and this reflects society's recognition of the importance of the institution of marriage. However, in order not to infringe the constitutional right to equality and freedom from discrimination, the definition of "spouse” in South Africa's Income Tax Act 58 of 1962 was amended to include –
"a person who is the partner of such person in a same sex or heterosexual union which the Commissioner is satisfied is intended to be permanent.”
The Estate Duty Act 45 of 1955 has a similar definition. Where a same-sex or heterosexual couple is not married, they thus have a financial interest in being categorised for tax purposes as "spouses”. Failure to take advantage of this concession can carry a significant fiscal cost.
However, where a person in such a de facto relationship is making a will, it is all too easy to overlook the fact that, if nothing particular is said in this regard, the survivor may have difficulty in establishing, to the satisfaction of SARS, that his or her relationship with the deceased was indeed "intended to be permanent”.
A directive will have to be sought from SARS
If the deceased estate is to be wound up on the basis that the deceased was a "spouse” in a de facto relationship, a directive will have to be sought from SARS that, for the purposes of the Income Tax Act and the Estate Duty Act, the two individuals in question were indeed in a relationship that was "intended to be permanent” and that they are thus to be treated, for purposes of the Act, as "spouses”.
SARS is unlikely to give such a directive on the mere say-so of the survivor. Affidavits and other documentary proof are likely to be demanded, attesting to such matters as the length of the relationship, the existence of a joint household, the sharing of expenses, and so forth. The shorter the relationship, the more difficult it may be to satisfy SARS that the relationship was intended to be permanent.