Print Page   |   Report Abuse
News & Press: Institute News

FAQ - 21 October 2015

21 October 2015   (0 Comments)
Posted by: Author: SAIT Technical
Share |

Author: SAIT Technical

1. What income should be taxable in the hands of the deceased vs his estate?

Q: A client passed away in the 2015 tax year. The executor arranged for a bank account to be opened into which various policies, closing of other personal bank accounts of the deceased and other sale proceeds are to be deposited into for the final Liquidation and Distribution account for this estate, before final distribution to the spouse/heirs etc.

This bank account has earned R22 500 in interest income from its inception in Dec 2014 to February 2015 while another R80 000 to date has been earned on this account since Feb 2015 to October 2015. 

There is also another investment which was left to the spouse as per the will and, due to various delays in the processing of the transfer of the asset from the deceased to the spouse, this has since also generated investment income since his death. The investment house has issued a tax certificate until 28.2.2015 for R30 000 of interest earned for the whole the tax year and cannot re-do the certificate until 30.9.2014 due to internal system issues.

The query relates to what income, as mentioned above, would fall into the hands of the deceased and what relates to the tax liability of the estate itself. 

Also, there is no clarity on how we need to go about registering the actual estate itself at SARS for this income as SARS branch offices/Estates consultants have different views.

A: This is dealt with by section 25 of the Income Tax Act (and paragraph 40 of the Eighth Schedule in as far as capital gains are concerned).  We included section 25 for ease of reference below:

"(1) Any income received by or accrued to or in favour of any person in his capacity as the executor of the estate of a deceased person, and any amount so received or accrued which would have been income in the hands of the deceased person had it been received by or accrued to or in favour of such deceased person during his lifetime, shall, to the extent to which such income or amount has been derived for the immediate or future benefit of any ascertained heir or legatee of such deceased person, be deemed to be income received by or accrued to such heir or legatee, and shall, to the extent to which such income or amount is not so derived, be deemed to be income of the estate of such deceased person.”  

None of this income therefore falls "fall into the hands of the deceased”.  

With regard to the investment that accrues to the spouse we submit that the interest that is earned after date of death on this investment will be income of the surviving spouse and not of the estate.  We are not sure why the investment house "cannot re-do until 30.9.2014” the IT3, but they should, in response to a request from the executor, provide that detail.  We submit that a mere letter confirming the amounts applicable to the period before or after should be sufficient.  In other words it doesn’t have to be an IT3.  SARS agrees as they say in response to an FAQ on their website that "This means that you will need to request the bank to provide you with a certificate confirming interest until date of death and not the full year of assessment. The amount until date of death will then be declared in the tax return of the deceased estate.”  

We don’t have enough detail regarding the other interest – i.e. if the heirs or legatees have a vested right thereto.  Any capital gains realised after death and in the estate are subject to tax in the estate.  

The estate must only register as a taxpayer if it derives taxable income or a taxable capital gain.  We understand that some SARS offices don’t understand how to register the estate as a taxpayer, but that doesn’t seem to be your problem.  The IT77 explains that the following is required to register a deceased estate:

  • Copy of the death certificate 
  • Death notice in the Government Gazette
  • Copy of the last will and testament, if a valid will and testament is not available, a next of kin's affidavit is acceptable 
  • Copy of the liquidation and distribution account 
  • Letter of appointment as Executor 
  • Inventory 

2. How should the primary residence exclusion be split between parties with joint interest? 

Q: A mother (50%) and 3 children (50%) own a house dwelling in which only the mother lives. 

Will the mother get the full primary residence rebate for her portion of capital gain or only 50% while the children will get no rebate other than the annual exclusion rebate?

A: The paragraph 45 exclusion requires that person disposing of the asset must have an interest in a primary residence.  In terms of the definition of primary residence the person must have ordinarily resided in the residence and used the residence for domestic purposes.  

It is paragraph 45(2) that provides that "where more than one natural person … jointly holds an interest in a primary residence at the same time, the amount to be disregarded … must be apportioned in relation to each interest so held.”  

We submit that there are two requirements – the interest and the use.  SARS confirms this in their guide when they state:

"When more than one person holds an interest in the same residence, the primary residence exclusion and the proceeds threshold are only split between those persons who occupy the residence as their primary residence. The interests of persons who do not reside in the residence as their primary residence are not taken into account.”  

Disclaimer: Nothing in these queries and answers 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 answers, SAIT do not accept any responsibility for consequences of decisions taken based on these queries and answers. It remains your own responsibility to consult the relevant primary resources when taking a decision. 



WHY REGISTER WITH SAIT?

Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.

MINIMUM REQUIREMENTS TO REGISTER

The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

Membership Management Software Powered by YourMembership.com®  ::  Legal