Reading the 1st interim report on estate duty by The Davis Tax Committee (DTC) reminds me of the joke re: a new simplified tax form with only two lines:

  • How much money did you make?
  • Send it to us!

Judge Dennis Davis has been tasked with reviewing our tax system with the sole purpose of finding more money.  This should come as no surprise considering the widening budget deficit, which is projected at R 162.2 billion for the 2015/2016 tax year.  Our Government debt is currently R 1.6 trillion up from R 500 billion in 2008 and expected to grow to R 2.2 trillion by 2017.

Interest on this debt alone is R 126.4 billion and is the fastest growing item in the national budget.   Add to this our bloated government wage bill and the cost of providing 17 million South Africans with grants and you can see the problem.

Estate duty is a wealth tax therefore very popular with our left leaning socialist thinking government, but has never been a great money spinner for treasury; there was even talk of abolishing estate duty given that it is an expensive tax to administer / collect and had spawned an entire industry in the avoidance of estate duty, but alas estate duty is here to stay.  I am only going to scratch the service of the report by highlighting two of the key proposals.

The DTC is finally coming after trusts.  For local domiciled trusts it is about forcing taxation within the trust.  Trust income is taxed at a punitive rate of 41% from rand one and capital gains at an effective rate of 27%.  Attribution and / or conduit rules currently allow the income and gains to be split and passed through to the beneficiaries, which is then taxed at their lower individual rates.

For offshore trusts the proposals are more severe in that the DTC proposes all future distributions be taxed as income only.  Offshore trust distributions currently retain their nature and are taxed accordingly i.e. income as income, capital gains as gains.

The DTC proposes increasing the individual primary rebate from R 3.5 mil to R 6 mil for a combined exclusion of R 12 mil per couple, but removing the Sect 4q exemption for bequests to the surviving spouse.  The surviving spouse will be able to use his / her primary rebate at the death of 1st dying to mitigate any estate duty liability.   Currently all bequests to the surviving spouse are exempt effectively rolling-over the estate duty liability until the last dying.  This proposal may result in serious liquidity implications for the surviving spouse on 1st dying.

The purpose of this article is simply to make you aware of the report, which is up for discussion and industry comment before any of the proposed changes will likely be implemented.   It appears treasury has a drawn a line in the sand in respect of their definition of wealth @ R 12 mil.  This was most likely based on the international family High Net Worth figure of $ 1 mil.  Incidentally at the current R/$ exchange rate of R 13.86/$ this equates to only $ 865 800, which means our wealthy have just become significantly poorer in global terms.


Mark Williams
Mcomm, CFP®, HdipTax
T. 021-851 3746

Tax the Rich
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