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Will there be a sec 4A and 4Q deduction for a man and woman

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living together for a couple...
Will there be a sec 4A and 4Q deduction for a man and woman living together for a couple of years. They have no formal agreement or registration of this co-habitation agreement between them.
Submitted: 7 years ago.Category: South Africa Law
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7/6/2010
Lawyer: JP, Attorney replied 7 years ago
JP
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Lawyer: JP, Attorney replied 7 years ago

Good day !

 

SARS Does not recognize these relationships to be defined as "spouse" here is the most recent amendment to the Estate Duty Act i have underlined and bolded the things that is most important to your answer.

 

Remember the 4A is always allowable as that is the primary rebate of R3,5 so spouse or not this is irrelevant to be defined as spouse

 

 

ESTATE DUTY

AMENDMENTS TO THE ESTATE DUTY ACT, ACT NO 45 OF 1955 (the Act)

TAXATION LAWS AMENDMENT ACT, ACT NO 17 OF 2009 (TLAA) TAXATION LAWS SECOND AMENDMENT ACT, ACT NO 18 OF 2009 (TLSAA) Amendments to sections 4A, 9A, 12 and 19 of the Estate Duty Act, 1955,

 

were inserted by the Taxation Laws Amendment Act, Act No. 17 of 2009 and the Taxation Laws Second Amendment Act, Act No 18 of 2009, which were promulgated in Government Gazette Nos. 32610 and 32611, both dated 30 September 2009. Taxation Laws Amendment Act, Act No. 17 of 2009 - amendment of section 4A The legal text can be found in section 5 of the said Amendment Act which reads as follows: ‘‘Dutiable amount of an estate 4A. (1) Subject to subsections (2) and (3), the dutiable amount of the estate of any person shall be determined by deducting from the net value of that estate, as determined in accordance with section 4, an amount of R3,5 million.

 

(2) Where a person was the spouse at the time of death of one or more previously deceased persons, the dutiable amount of the estate of that person shall be determined by deducting from the net value of that estate, as determined in accordance with section 4, an amount equal to the amount specified in subsection (1)- (a) multiplied by two; and (b) reduced by the amount deducted from the net value of the estate of any one of the previously deceased persons in accordance with this section.

 

(3) Where a person was one of the spouses at the time of death of a previously deceased person, the dutiable amount of the estate of that person shall be determined by deducting from the net value of that estate, as determined in accordance with section 4, an amount equal to the sum of- (a) the amount specified in subsection (1); and (b) the amount specified in subsection (1) divided by the number of spouses, reduced by an amount which is determined by dividing the amount deducted, in accordance with subsection (1), from the net value of the estate of the previously deceased person by the number of spouses of that previously deceased person.

 

(4) The amount contemplated in subsection (2)(b) or (3)(b) shall not exceed the amount specified in subsection (1).

 

(5) Subsections (2) and (3) shall not apply unless the executor of the estate of that person submits, at the time and in the manner and form prescribed by the Commissioner, to the Commissioner a copy of a return submitted to the Commissioner in terms of section 7 in respect of the estate of the previously deceased person.''

After determining the "net value of an estate (property plus deemed property less liabilities and deductions in terms of section 4 of the Act) a fixed amount in terms of section

 

4A is deducted from the net value of the estate to establish the "dutiable

2

amount of the estate" on which 20% estate duty is levied. As from 1 March 2007 this amount is R3 500 000. In terms of the amendment to section 4A, the deduction is increased if the deceased was the spouse of one (or more) previously deceased persons. In such cases the dutiable amount of that estate is determined by subtracting the R3,5 million multiplied by two from the "net value of the estate". This amount (R7 000 000) must, however, be reduced by the value of the deduction which was deducted from the net value of the predeceased spouse in terms of the section 4A deduction as applied at the date of death of the predeceased spouse.

 

In cases where there were more than one previously deceased spouse, the executor has the choice to use the amount so deducted in any one of the predeceased spouse's estates. Example 1 - Section 4A(2) Phillip died on 5 January 2010. He was married to Jane who died on 15/8/2005 (during that time the section 4A deduction was R1 500 000). The net value of her estate was R650 000. In reducing the dutiable amount in her estate to R Nil, R650 000 of the section 4A deduction was used. On 7/10/2007 Phillip was married to Dawn who died on 28/12/2008 in a car accident. The net value of her estate amounted to R2 500 000. The section 4A deduction on date of her death was R3 500 000; R2 500 000 of the section 4A deduction was therefore used in her estate. The section 4A deduction in Phillip's estate will be: R3 500 000 x 2 = R7 000 000 (4A(2)(a)) Less: R650 000 or R2 500 000 (4A(2)(b)) The executor in Phillip's estate has the choice to reduce the R7 000 000 (section 4A(2) deduction) either by R650 000 (4A deduction used in Jane's estate) or R2 500 000 (used in Dawn's estate) to determine the deduction in terms of section 4A(2) in Phillip's estate. In order to use the deduction in terms of section 4A(2), the following requirements must be complied with:

  • In terms of subsection (4), the amount contemplated in subsection (2)(b) may not exceed the amount specified in subsection (1).
  • In terms of subsections (5) the executor of the second dying spouse's estate must submit a copy of the return prescribed by the Commissioner in terms of section 7 of the Act in respect of the estate of the previously deceased person.

THIS EXAMPLE DEALS WITH CUSTOMARY MARRIAGES AND NOT WITH YOUR QUESTION BUT IT SHOWS THAT CUSTOMARY MARRIAGES IS CONSIDERED SPOUSE

 

Example 2 - Section 4A(3) John had 3 wives in terms of a customary marriage. He died prior to 1/1/2010 and his estate used R500 000 of the section 4A deduction to reduce the dutiable amount of the estate to R Nil. His wife, Sarah, died on 5/1/2010 and left an estate of R5 million. The section 4A deduction in her estate will be: The sum of section 4A(1) + [4A(3)(a) less 4A(3)(b)] R3 500 000 + [R3 500 000 ÷ 3 less R500 000 ÷ 3] R3 500 000 + R1 166 667 less R166 667 R3 500 000 + R1 000 000 R4 000 000

3

Example 3 - Section 4A(3) Cobus had 5 wives, he died prior to 2010 and his estate used R3 million of the section 4A deduction in his estate. One of his wives, Susan, died on 8 January 2010 and left a net estate of R7 000 000 Section 4A deduction in her estate: The sum of section 4A(1) + [4A(3)(a) less 4A(3)(b)] R3 500 000 + [3 500 000 ÷ 5 less 3 000 000 ÷ 5] R3 500 000 + [700 000 - 600 000] R3 500 000 + R100 000 R3 600 000 To be enable to use the deduction in terms of section 4A(3), the executor must comply with the following requirements (same as section 4A(2)):

  • In terms of subsection (4), the amount contemplated in subsection (3)(b) may not exceed the amount specified in subsection (1).
  • In terms of subsection (5) the executor of the second dying spouse's estate must submit a copy of the return prescribed by the Commissioner in terms of section 7 in respect of the estate of the previously deceased person.

As the amendments inserted in section 4A (subsection (2) to (5)) only deal with the cases where "spouses" are involved the estates of persons who died on or after 1 January 2010 and who were not involved in such a relationship, are still only entitled to a deduction in terms of section 4A amounting to R3 500 000. The above-mentioned amendments came into operation on 1 January 2010 and apply in respect of the estate of a person who dies on or after that date. The effective date applies to the date of death of the second dying spouse.

 

IT GOES WITHOUT SAYING THAT SEC4Q WILL ALSO NOT APPLY

 

 

 

Kind Regards

JP

Attorney

 

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Lawyer: JP, Attorney replied 7 years ago

In 2001 a definition of "spouse" was introduced into the Income Tax Act No. 58 of 1962 (the Act), the Estate Duty Act, and the Transfer Duty Act. This seemingly innocuous and politically correct definition has implications that are perhaps not readily apparent to the taxpayer. In terms of this definition, "spouse" means, in relation to any other person, a person who is the partner of that person:

a) in a marriage or customary union recognized in terms of the laws of the Republic;

b) in a union recognized as a marriage in accordance with the tenets of any religion; or

c) in a same sex or heterosexual union which the Commissioner is satisfied is intended to be permanent.

 

The definition then provides that any marriage or union contemplated in either paragraph (b) or (c) will, in the absence of proof to the contrary, be deemed to be a marriage or union without community of property.

 

Say two people have been co-habiting for 10 years and do not intend to get married. In terms of the fiscal Acts there is a strong suggestion that they are spouses in terms of the definition, with the implications that accompany that status. This status could be invoked by them or by the Commissioner, but in practice is more likely to be initiated by them because of the fiscal benefits that flow from such status, which include, apart from the obvious social benefits that arise from the recognition of parties to such relationships as spouses, and in particular the protection for partners:

  • Donations tax is not payable on donations between spouses.
  • Transfer duty is not payable on the transfer of property between spouses on termination of the union, whether by death or break-up.
  • Estate duty is not payable on any asset bequeathed to a spouse.
  • Capital gains tax is not payable on the disposal of an asset, by whatever means, from one spouse to the other. The recipient spouse is deemed to have acquired the asset at a base cost equal to that of the disposing spouse.

 

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Lawyer: JP, Attorney replied 7 years ago

Ok so what am i saying? THERE IS CONFUSION IN THE LEGAL PROFESSION AS WELL AS AT SARS ABOUT THE DEFINITION OF SPOUSE.

 

My advice: Contact SARS and ask for a "Tax Directive" on this.

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Customer reply replied 7 years ago
JP, there is so many people that wants to make me believe that sec4q is applicable to the scenario, but when I read the definition of a spouse in the act, I cannot come to the same conclusion as those who says that sec 4q of the Estate Duty Act will allow a R 3,5 mil dedution for the couple.
Lawyer: JP, Attorney replied 7 years ago

Yes it seems the court will some or other time need to make an order on this but for know get the directive from SARS.

 

Are you prepared to compensate me for my time spent on this question?

 

 

 

 

 

Kind Regards

JP

Attorney

 

 

 

 

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