Times They Are a Changing

Trusts and EstatesBob Dylan penned his classic hit song “Times They Are a Changing” in 1963, one year after South Africa’s current Income Tax Act was first passed as legislation. Since then, through the annual budget regulatory taxation laws process, this act has been amended and changed over the last 53 years. Bob Dylan’s song has stood the test of time, but can the same be said of the Income Tax Act?
The manner and way in which business was undertaken and income earned in 1963 was very different to today, yet the same Income Tax Act is expected to be applied. It is no surprise then that the Davis Tax Committee was mandated by the Minister of Finance to review various parts of our tax legislation and its relevant application in today’s modern world. Their interim report into Estate Duty was recently released and is open for public comment until the end of September 2015.
The report recommends that both estate duty and capital gains tax on death are retained. This has long been a bone of contention amongst the tax advisory fraternity, as it essentially amounts to double taxation on death and severely inhibits one’s ability to pass on a legacy to heirs. The report also comes down hard on the current treatment of spousal bequests, which currently are exempt from estate duty and enjoy a CGT rollover benefit. Their argument being that it takes the fiscuss too long to collect any of these death taxes.
The tax treatment of trusts received much attention and the report recommends a radical overhaul of the taxation of trusts. The main objective being to ensure that the estate duty saving of having assets grow in a trust is partly offset by the higher CGT charge imposed. The conduit principle currently enshrined in tax law might very well come to an end, with the recommendation that trust income and gains are ring fenced within the trust and taxed accordingly.
davis-tax-committee-300x179Many submissions have been submitted to Judge Dennis Davis and his committee for deliberation, and it is likely that they will take cognizance of the comments contained therein and apply their learned minds thereto. However, it is also certain that not all the recommendations contained in this report are going to be swept under the carpet and not implemented.
What will the effect be on all South African tax residents in respect of which the future legislation will apply? The short answer is that at this point in time we do not know. One must remember that this report is not yet legislation and is currently only a theoretical document. One should not make knee jerk reactions at this point in time and overhaul all of one’s structures and will in a vain attempt to preempt some or all of the proposals.
But it is with equal certainty that as and when the final draft of the proposed legislation is made public, it will be imperative that all South Africans review their current will, estate planning strategies and trust structures. As Bob Dylan sang, “the old order is rapidly fading, and the first one now will later be last, for the times they are a changing”. Getting up to date pertinent professional advice from a Financial Advisor in all these matters will most certainly prove to be time and money well spent, to ensure that strategies are aligned to the new times that are coming.

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