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You'll owe SARS tax even after you're dead!

by , 27 October 2016
You'll owe SARS tax even after you're dead!If you think the only time you're tax free is when you're dead, you're wrong! The taxman's arm extends even past death!

If you're dealing with your company's distribution, trust or deceased estate, then Capital Gains Tax applies to you.

This is just one of the situations in which there's a Capital Gains Tax implication whether you're aware of it or not!

Read on as I explain the Capital Gains Tax consequences from beyond the grave...

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The Taxman's arm extends past death in deceased estates

If you die and leave your assets to someone, your deceased estate will pay CGT.

And if your estate exceeds R3.5 million then your beneficiary is subject to pay estate duty. You work this out by: the net value of your estate – R3.5 million = the value of your estate x 20% = estate duty payable.

For example: if the net value of your estate is R4 million – R3.5 million = R500 000 x 20% = R100 000 is payable.

But, the good news is the following disposals are tax free:

  • Assets inherited by your partner/spouse;
  • Assets left to a public benefit organisation;
  • Long term assurance policies (whole life and endowment policies are excluded from CGT) and;
  • Interests in South African pension, provident and retirement funds.

Read on to learn of the CGT consequences of the distribution of an asset in kind.
 
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CGT consequences apply to your company and shareholders if you distribute an asset in kind

Your Company:
There's a deemed disposal of the asset by your company at market value.
So your company will pay CGT on the positive difference between the market value of the asset and its base cost.
 
The Shareholder:
The base cost of the asset received in the distribution is considered to be in the market value of the asset.
 
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So, SARS' only hope is to go after taxpayers with a vengeance.
But not individual taxpayers.
No. It's set its sights on corporate taxpayers, like you.
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Because with it, you'll uncover no less than 139 ways for your business to legally pay less tax.

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Resident trusts and the CGT consequence

There are some transactions involving trusts where you must be aware of their Capital Gains implications.

The following parties pay CGT when they dispose of a trust:

  • The resident beneficiary has a right to the Capital Gain of the vested trust or a discretionary trust;
  • The funder of the trust where the Capital Gain hasn't vested in any of the beneficiaries at all;
  • The Capital Gain has vested in a beneficiary who is either a non-resident or a minor or;
  • The trust is funded by a low interest loan.

Let's face it, CGT is complicated. But by being aware of the following situations where CGT consequences apply, you could possibly avoid or decrease the CGT consequences.

P.S. Disposing of an asset? Make sure you don't pay a cent more than you have to! Find out how here

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