Transfer of assets between spouses: What are the tax implications?

Section 9HB of the Income Tax Act provides for a roll-over of a capital gain or loss when an asset is transferred between spouses during their lifetimes. The roll-over is mandatory, and spouses do not have the option to elect out of it. The policy rationale for the roll-over is that the transferor spouse must benefit from not immediately having tax exposure on a transaction since the transferee spouse will pay the downstream tax when they eventually dispose of an asset, or when it becomes part of the estate.

Importantly, the roll-over relief in section 9HB will not apply when a person disposes of an asset to a spouse who is not a resident.

On a practical level, the relief works as follows:

  • The disposing spouse (transferor spouse) must disregard any capital gain or loss when disposing of an asset to his or her spouse (transferee spouse).
  • The transferee spouse takes over all aspects of the history of the asset from the transferor spouse. The transferee spouse is deemed to have:
    • acquired the asset on the same date that the asset was acquired by the transferor
    • incurred an amount of expenditure equal to the expenditure that was incurred by the transferor in respect of that asset
    • incurred that expenditure on the same date and in the same currency that it was incurred by the transferor
    • used that asset in the same manner that it was used by the transferor

Notably, apart from outright transfers, the following events are treated as disposals between spouses:

(a) A deceased spouse

In the event of the death of one spouse, the resident surviving spouse must be treated as having disposed of an asset to that spouse immediately before the date of death – if the deceased estate of that spouse acquires ownership of that asset in settlement of a claim arising under the Matrimonial Property Act.

(b) A divorce or court order

A person must be treated as having disposed of an asset to his or her spouse if that asset is transferred to that spouse in the following cases:

  • Divorce
  • A religious marriage or civil union, where an agreement of division of assets has been made an order of court.

The special rules under section 9HB must be considered to determine the tax implications when a person disposes of an asset to his or her spouse. While providing for a roll-over of a capital gain or capital loss when an asset is transferred between spouses during their lifetimes, it also ensures that a resident spouse to whom an asset is disposed of, takes over all aspects of the history of the asset from the transferor spouse.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

SARS helping businesses lessen the tax load

The last few months have been extremely tough for small business owners as a result of the global COVID-19 pandemic, and various lockdown measures that have created a challenging trading environment. The South African Revenue Service (“SARS”) has identified this hardship, and as a result, the National Treasury recently tabled the Disaster Management Tax Relief Administration Bill, which would assist micro, small and medium businesses should they seek to utilise this relief.

Although many of these measures have applied in practise, they have not officially been included in a tax bill and will soon have the necessary legislative effect (once promulgated).

To be a candidate to claim relief, a small business must:

  • Have a tax compliant status;
  • Conduct a trade during the year of assessment ending after 1 April 2020 to 31 March 2021, and earn gross income of R100 million or less; and
  • Not more than 20% in aggregate of the gross income can come from interest, dividends, royalties, rental payments, annuities, or remuneration received from an employer (generally aimed at passive income).

The relief offered by the Bill covers the following:

Pay-As-You-Earn (“PAYE”) deferral

Employers can claim a four-month deferral relief from 1 April 2020. To claim, two options are available;

  • Employers are still required to submit full PAYE returns (EMP201). SARS will issue a statement of account reflecting the relief; or
  • Calculate the total payable at 65% of the total.

After 7 August 2020, SARS will determine an amount payable in six equal payments to cover the outstanding (deferred) liability.

Employment Tax Incentive (“ETI”)

This programme runs from April 2020 to July 2020 and is claimed in the monthly EMP201. To claim, an employer is required to calculate the total ETI and 65% of the PAYE. The employer then utilises the lessor of the total ETI, or 65% of the PAYE liability to claim relief.

Provisional tax deferral

The period runs from 1 April 2020 to 30 September 2020 for the first payment period, and from 1 April 2020 to 31 March 2021 for the second provisional payment period. The gist of this assistance is that companies are required to pay only 15% of the first provisional payments and 65% (after deducting the first 15%) of the second payment. The remaining 35% will be payable on the third provisional payment date to avoid interest charges on late payment.

Accelerated value-added tax (“VAT”) refunds

From 1 May 2020, VAT vendors can file monthly VAT claims as opposed to every 2 months. Category A vendors can claim this relief from April 2020 to July 2020, and vendors registered under category B from May 2020 to August 2020.

The above relief measures contained in the Disaster Management Tax Relief Administration Bill are bound to bring some welcome cash flow and liquidity relief to struggling SMMEs in South Africa.

For more information on these relief measures, visit www.sars.gov.za/media/pages/tax-relief-measures.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Taxpayers’ details remain protected

In the case of the Commissioner for SARS vs Public Protector (23 March 2020) in the Gauteng High Court, the matter of the confidentiality of taxpayer information came up for consideration. This matter has a protracted history stemming from around November 2018. The Public Protector’s office had been actively seeking the (then) president’s tax records for an investigation, and for which the Public Protector issued a subpoena in October 2018.

The Public Protector argued that her office required the personal tax information of former President Zuma as she was investigating a complaint by a political party sourced from a column in a published book, relating to the former president’s alleged tax woes and that he had been receiving a salary from a private security company.

The substance of the Public Protector’s argument was based on the legal concept of jus causa (just cause), stating that this information was essential to her investigation. Interestingly, the former president came out in the Public Protector’s defence and attempted to file an affidavit confirming that she may access these records.

SARS’ argument to deny access to the records was based on section 67 of the Tax Administration Act, protecting the secrecy of taxpayer information. SARS’ refusal was echoed by counsel and based on the premise that the subpoena sought to coerce the production of sensitive information, and which production is a criminal offence according to the Tax Administration Act. SARS further pointed out that the Public Protector is not an “exempted authority” for purposes of providing information. SARS similarly pointed out that the Public Protector had various other avenues available to obtain this information, which was both lawful, and was never attempted (and that she had received advice to this effect).

The Court ruled in favour of SARS, confirming the sanctity of taxpayer secrecy. In his judgement, judge Mabuse confirmed that the Tax Administration Act provides that no current or former SARS employee may disclose taxpayer information to any person who is not a SARS official. The Court further looked at the phrase “just cause”, as contemplated in the Public Protector Act, and denied that this instance was a situation of just cause, warranting the issuing of a subpoena. The Court held that the Public Protector had no valid reasons for seeking the taxpayer information, that she failed to observe legislation and had the wrong impression that she had unlimited powers.

SARS’s application of withholding the information was upheld and the court order that was based on the provisions of the Tax Administration Act, as well as the “just cause” provision held in the Public Protector Act, provided that SARS was entitled to withhold this information. It was further ordered that the Public Protector’s subpoena powers do not extend to taxpayer information.

Taxpayers should take some heart from the judgement, knowing that SARS has the right, and will attempt, to keep their tax matters confidential from other parties, within the boundaries of the law.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Tax law for employer transport services

In terms of the Tax Administration Act, the South African Revenue Service (“SARS”) can issue Binding General Rulings (“BGR”) on matters of general interest or importance and clarifies the Commissioner’s application or interpretation of the tax law relating to these matters.BGR 50 provides clarity on the so-called “no-value” provision in respect of the rendering of transport services by an employer to its employees.

Background

Employers may often provide employees with transport services from their homes to the place of employment. Although it typically applies where places of work are remote, such as in the farming or mining sectors, the provision of such services has also become prevalent in urban areas where traffic congestion takes up significant employee hours. In terms of the Seventh Schedule to the Income Tax Act, which deals with fringe benefits, these transport services are taxable as a fringe benefit in the hands of employees. The benefit may, however, attract no value where certain conditions are met, which effectively results in no tax consequences for the employee. Confusion has often arisen on the application of the “no-value” provision, especially where the transport is outsourced to a third party.

Paragraph 2(e) of the Seventh Schedule provides that a taxable benefit is deemed to have been granted by an employer to an employee where the transport service, at the expense of the employer, has been rendered to the employee for private or domestic purposes.

Paragraph 10(2)(b), in turn, provides that such a taxable benefit will attract no value if transport services are rendered by the employer to its employees in general for their conveyance between work and home. The focus of this section is that the “no-value” provision applies where the employer renders the transport service and does not contract it to another party. This is the essence of the distinction for the BGR.

Ruling

Where the transport is not provided directly by the employer (and is outsourced to a specific transport service provider), the employer must make the conditions of the provision of the transport services clear. Transport services:

  • Should be exclusively offered to employees based on predetermined routes;
  • Cannot be requested on an ad-hoc basis by employees; and
  • The contract for the service is between the employer and the transport provider, and no employee is a party to the contract.

The provision and access to general public transport will not be regarded as a transport service provided by the employer and the “no-value” provision will not apply in these circumstances.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

The taxing of capital gain

Section 9HA of the Income Tax Act deals with deemed disposals by a deceased person. This section of the Act often causes some confusion, especially where there are heirs or legatees other than the surviving spouse. In terms of the provision, a deceased person is treated as having disposed of his or her assets at the date of death, for an amount received or accrued equal to the market value of those assets as at the date of death.This deeming provision does not apply to the following circumstances:

  • Assets of, or for the benefit of the deceased’s surviving spouse.
  • An interest in a resident pension, pension preservation, provident, provident preservation or retirement annuity fund; or a fund, arrangement or instrument outside of South Africa, which provides similar benefits to that in South Africa.
  • In respect of some long-term insurance policies of the deceased.

The position is, however, different if the surviving spouse of the deceased acquires the assets. In this instance, the deceased is deemed to have disposed of the assets at base cost on the date of the deceased’s death. The surviving spouse essentially steps into the deceased’s position.

In the situation where assets are acquired by heirs or legatee’s, assets acquired are treated as though they were disposed of on the day immediately before the deceased’s death, at the market value of those assets. In this instance, any capital gains are to be included in the deceased’s final tax return covering taxes up to date of death.

The consequence is that, if an heir or legatee acquires assets in this manner, the base cost for them is the market value of the assets on the date of death of the deceased.

The practicalities of death are that there are essentially three different taxpayers involved:

  • The deceased person is to file a return covering taxes up until the date of death.
  • Thereafter, the deceased estate is regarded as a “person” for purposes of tax and is required to file a tax return for income earned after death, for each year that the estate is active.
  • Then finally, any heir or legatee is the ultimate beneficial owner of the assets and acquires the assets, and these then form part of such heir or legatee’s estate from the date of distribution to said person.

Executors of estates should, therefore, exercise caution when dealing with the capital gains tax consequences of a person’s death, as the type of heir or legatee could determine the treatment.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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