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Davis Tax Committee second interim report

Posted by: Ibay | Posted on: December 6th, 2016 | 0 Comments

During July 2015, the Davis Tax Committee released its first interim report on Estate Duty in South Africa.  The recommendations contained in the 2015 Estate Duty report has caused quite a stir by different interest groups. The report was followed up with a webinar sessions with Judge Dennis Davis during December 2015, whereby the judge noted that they will go back to the drawing board and release and updated report.

After receiving extensive feedback on the proposals given on the first report, the Davis Tax Committee has released a second and final report on Estate Duty on 24 August 2016.  This report contains recommendations to the Minister of Finance and it’s important to note that these recommendations will be subject to normal consultative processes and legislative processes.

Herewith a summary of the relevant proposals:


Retirement Fund Abatement

  • It is recommended that the maximum threshold for tax deductible retirement fund contributions (currently: R350 000) be increased to take inflation into account.

Inter-spouse Abatement

  • Inter-spouse abatement should be withdrawn and replaced with a substantially enhanced primary abatement (see below), thus ensuring the consistent equitable treatment of all taxpayers.

Primary Abatement and Rate

  • It is recommended that the primary abatement be increased to R15 million for all taxpayers, irrespective of marital status, and that the estate duty rate be increased from 20% to 25% of the dutiable value of an estate exceeding R30 million.

Capital Gains Tax

  • CGT rollover provisions of the 8th Schedule to the Income Tax Act, relating to inter-spouse bequests, should be repealed and replaced with a more generous death exemption of R1 million.


Donations Tax

  • It is recommended that the inter-spouse exemption within the donation tax system should also be removed, save for providing an exemption for the reasonable maintenance of the taxpayer and his/her family.
  • In order to prevent the diminution of estates in anticipation of death, it is recommended that the section 56 1(c) exemption, which relates to donations made in anticipation of death, should be removed.
  • Transfer of assets in terms of a divorce order should be subject to the exemptions similar to a death benefit for estate duty and CGT.  It is also recommended that the taxpayers’ death benefit abatement or subsequent abatements be reduced by the quantum of any allowances claimed during the taxpayer’s lifetime.

Bare Dominium and Usufruct Arrangements

  • It is recommended that SARS establish comprehensive records of all bare dominium and usufruct arrangements, and part of the requirements should be that all holders of part interests in property be required to submit tax returns irrespective of income levels.


Estate Duty and Trusts

  • It is recommended that all trust arrangement should be examined by SARS on registration of trust arrangement and upon transfer of assets into a trust.
  • Section 3(3)(d) of the Estate Duty Act should extend to include deeming provisions that identify “deemed control” of a trust, through loan accounts between a trust a “connected person(s)” where the loan is interest free or below the official rate of interest.

Capital Transfer Tax

  • Further investigation to be conducted into the implementation of wealth taxes in S.A.

Income Tax:  Vested Trusts

  • Stricter disclosure requirements to be enforced on donors and beneficiaries of vested trust arrangements.
  • It is recommended that SARS should concentrate on any trust whereby the deceased may have enjoyed a vested interest, to ensure that all income and capital has been brought into account for both income tax and estate duty purposes.

Income Tax:  Discretionary Trusts

  • It is recommended that only where the trust deed confers on beneficiaries and indisputable and irrevocable vested right to both the capital and income of a trust, should the income (capital & revenue) be taxed in the hands of the beneficiary.
  • In all other cases, revenue income must be taxed in the trust and capital income generated while assets are held in trust on a vested basis must be taxed within the trust.

Trust Tax Rates and CGT Inclusion Rates

  • Current flat tax rate should be retained and be subject to adjustment in line with changes in the maximum individual marginal income tax rate.

Foreign Discretionary Trusts

  • It is recommended that SARS should examine the substance of offshore trust arrangements prior to vesting and distribution.  Information sharing (CRS & FATCA) will be the starting point for such investigations.
  • SARS should establish a separate investigation unit to thoroughly and comprehensively examine foreign trust arrangements.  Where disclosure deficiencies are detected, it is recommended that the penalty provisions of the Tax Administration Act, 2011 (TAA) should be applied rigidly.

In conclusion it’s important to understand that these are only proposals, and it gives an idea of what changes to expect in the future.  Until certainty has been reached with the above changes it is recommended that individuals do not make any hasty changes to their current structures as any changes made prematurely might have unintended consequences.

Author:  Sanlam Private Wealth

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