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CGT Deceased Estate - must the proceeds equal the base cost in terms of assets?

23 January 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

CGT Deceased Estate- must the proceeds equal the base cost in terms of assets bequeathed to surviving spouse?

Q: With regards to a deceased estate’s assets bequeathed to a spouse, in the final date of death tax return, do I show the deemed disposal of the assets to the spouse? Do I disclose the proceeds as equal to the base cost, giving rise to a nil capital gain? 

A: Under para 40(1) Eighth Schedule to the Income Tax Act the assets of a deceased person are deemed to be disposed of at market value at the date of death. Excluded from this deemed disposal are assets transferred to the surviving spouse of a deceased person as contemplated in para 67(2)(a) [para 40(1)(a)] Eighth Schedule. In this way the deceased is relieved of any CGT liability in respect of the relevant assets. Despite this non-disposal treatment under para 40(1)(a), para 67(2)(a) takes precedence and deems the deceased person to have disposed of his or her assets to his or her spouse for the purposes of para 67(1) when the spouse acquires ownership of those assets through intestate succession, inheritance or as a result of a redistribution agreement. 

This rule has the effect of making the roll-over provisions of para 67(1) applicable to the assets acquired by the transferee spouse. It will accordingly only be possible to finalise the CGT consequences for the deceased and his or her spouse once the liquidation and distribution account has lain open for inspection for the prescribed period and no objection has been lodged against it, for it is only at this point that the surviving spouse acquires ownership of the assets. For example, if the assets of the deceased are bequeathed under the last will and testament to the surviving spouse and assets are disposed of by the executor before the liquidation and distribution account has become final, the roll-over relief will not apply to those assets because the surviving spouse will not have acquired ownership of them.

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.


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