Assignment and Exam (elaborations) Taxation of Estates

, Capital Gain Tax

 Upon death, two “taxpayers” come into being:
o The deceased
o The deceased’s estate
 Tax rate at 40%
 Annual Exemption of R300 000 for deceased’s CGT
 Annual Exemption of R40 000 for deceased’s estate CGT
 R 1 800 000 (maximum) disregarded for Small business assets disposal
 Assets acquired prior to 1 October 2001 Base cost is to be determined by means of
determining Valuation Date Value (VDV):
o Use HIGHEST of:
 Market value of asset as at 1 October 2001
 Time apportionment base cost (TAB) of asset
 20% rule
o Base cost = VDV + Expenditure after 1 Oct 2001
 Assets Excluded for CGT purposes
o Primary Residence first R2 000 000 excluded
 If deceased didn’t live in house continuously, must be pro-rata
 Residence situated on land more than 2 hectares. Must be apportioned as
maximum of 2 hectares are excluded
 Exclusion of primary residence don’t apply to foreigners
 Deceased operated a business from the residence at any time, a portion of
the R2 000 000 exclusion is disregarded. i.e. surface area of operated
business divided by the total surface area of the property
o Assets for personal use
o Assets inherited by the surviving person
o Proceeds from life assurance policies
o Interest in pension, provident fund or retirement annuity

, Capital Gain Tax

FRAME WORK
TAXABLE CAPITAL GAIN/LOSS OF THE DECEASED
R
Asset
Proceeds: MV at date of death xxx xxx
LESS Basecost: Acquisition value (xxx xxx)
Capital Gain/Loss

Asset 1:
Capital Gain xxxx xxxx

Asset 2
Capital Loss ( xxx xxxx)

Annual Exclusion (300 000)

Aggregate Capital Gain xxx xxxx

Capital Gain inclusion rate @ 40% (aggregate gain x 40%) xx xxx

TAXABLE CAPITAL GAIN/LOSS OF THE DECEASED ESTATE
R
Asset
Proceeds: Amount that executor sold asset for xxx xxx
LESS Basecost:MV of asset at time of death (xxx xxx)
Capital Gain/Loss

Asset 1:
Capital Gain xxxx xxxx

Asset 2
Capital Loss ( xxx xxxx)

Annual Exclusion (40 000)

Aggregate Capital Gain xxx xxxx

Capital Gain inclusion rate @ 40% (aggregate gain x 40%) xx xxx

, Question
Alice, aged 63, married out of community of property (without accrual) died on 30 November 2019 in
Pretoria. Alice's estate was worth R4 215 000 and consists of the following:
(assets acquired after 1 Oct 2001)
Assets Market Value at death Base Cost Selling Price
Primary Residence in Pretoria 2 235 000 1 200 000 n.a
Motor Vehicle 285 000 350 000 245 000
Holiday Flat in Durban 1 695 000 495 000 1 800 000
*may/june 2020
Solution
TAXABLE CAPITAL GAIN/LOSS OF THE ALICE
R
Asset 1: Primary Residence
Proceeds: 2 235 000
Basecost: (1 200 000)
1 035 000
Annual Exemptiopn R2 000 000 limitation (1 035 000)
Capital Gain/Loss -

Asset 2: Motor Vehicle -
NO CGT implication as it's deemed as personal assets and used for private use

Asset 3: Holiday Home
Proceeds: 1 695 000
Basecost: ( 495 000)
Capital Gain 1 200 000


Capital Gain Tax only applicable to Asset 3
Asset 3 - Gain 1 200 000
Annual Exclusion ( 300 000)
900 000
Tax at inclusion rate 40% (90 000 x 40%) 360 000

TAXABLE CAPITAL GAIN/LOSS OF THE DECEASED ESTATE
R
Asset 1: Primary Residence below annual exemption amount of R2 000 000 -
Asset 2 : Motor vehicle NO CGT implication as deemed personal asset
Asset 3: Holiday home
Proceeds 1 800 000
Basecost (1 695 000)
Capital Gain 105 000
Annual exclusion ( 40 000)
65 000
Tax inclusion rate of 40% (65 000 x 40%) 26 000