EMA Newsletter August 2009

PROPOSED TAX RELIEF FOR DOMESTIC RESIDENCES

Previously, similar legislation was made available, which was terminated on 30 September 2002.

Should this proposal become law, those persons who are eligible and did not take advantage of the relief previously, should engage promptly this time, as this concession may not be offered a third time!

Do you have a domestic residence in a Close Corporation or a Company?

The Draft 2009 Taxation Laws Amendments contain the following proposal:

Between 01 January 2010 and 31 December 2011, one may be able to transfer your domestic residence from a Close Corporation or a Company, tax free.

• The transfer will be exempt from Capital Gains Tax, Secondary Tax on Companies and Transfer Duty.
• The transferee would enjoy the R1.5 million “primary residence exclusion” from Capital Gains Tax.
• The transfer would not encounter Estate Duty, as long as the natural persons hold all the equity.
• This option is not available to Trusts.
• The property must be transferred to the shareholder of the entity.
• The property must be the entity’s sole asset.
• The entity must be wound up after the transaction.
• It is important to note that should the property be bonded at present then the shareholder would need to either re-finance the property or settle the outstanding mortgage bond.

HOW TO PLAN YOUR ESTATE

The planning of your estate includes drawing up a will, establishing what you own and what you owe, and calculating what your estate will have to pay out before any assets can be passed on to your beneficiaries.

The 4 basic steps you should follow when you consider how your estate should be distributed:

REMEMBER! Your estate plan will have to be revised as your estate evolves or as your family’s circumstances change.

1. LIST YOUR ASSETS

If you are married in community of property, the executor of your estate will deal with your and your spouses assets. Remember however, when drawing up your will, that you can dispose of only your undivided half share of the assets.

2. WORK OUT YOUR LIABILITIES

These must be deducted from the value of your estate.
The deductions include:

Your funeral and any other death expenses.
Any debts owed.
Executor’s fees. (which can be negotiated at time of drafting your will)
Accrual claims owed to your spouse in terms of the Matrimonial Property Act.
VERY IMPORTANT: The CGT (Capital Gains Tax) your estate will have to pay.

Every year there is a certain amount of capital gains you can make without paying CGT, however in the year of your death, the exemption is
more than usual.
The annual CGT exclusion is R120 000 when you die,
and you are also allowed a R1,5 million CGT exclusion on the gains in the value of your primary residence.

3. WORK OUT THE ESTATE DUTY YOUR ESTATE WILL HAVE TO PAY

Amounts exempt from estate duty include:

• Assets left to your spouse.
• Assets left to a PBO.
• The estate duty abatement.

The abatement is R3.5 million. If there is more than R3.5 million remaining in your estate after your liabilities and the amounts you are leaving to your spouse or a PBO have been deducted, your spouse will pay estate duty at a rate of 20% on the amount over and above R3.5 million.

4. WORK OUT THE LIQUIDITY OF YOUR ESTATE

This basically involves calculating whether your estate has enough cash to settle its liabilities and make cash bequests.

Take the following into account:

• Any outstanding debts.
• Estate duty, CGT and income tax.
• Funeral costs and death expenses.
• Executor’s fees.
• Administrative costs of winding up your estate.