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Choose your marriage contract wisely, there are tax consequences of getting it wrong

by , 09 April 2013
'The tax consequences of marriage are not likely to be on your mind when you stand before the altar with your life partner, but there are definite tax consequences to marriage,' warns The Practical Tax Loose Leaf Service. There are two danger areas you can't afford to overlook. Read on to find out what the taxman does when you're married out of community of property with or without accrual and when you're married in community of property.

When you said 'I DO' did you realise how it would affect you from a SARS perspective?

Fact: The type of marriage contract you choose will have a direct impact on the amount of taxes you and your spouse will pay in future.

Marriage contracts can take many forms, but the most common contracts are marriage in community of property; marriage out of community of property without accrual; and marriage out of community of property with accrual.

So when you're assessing the possible tax consequences of marriage, your primary concern will be whether your marriage is in or out of community of property. Here's why…

Beware of tax consequences for your marriage contract

  • If you're married out of community of property, 'each spouse's income will be earned and taxed independently, without reference to the other spouse. Unless SARS suspects some kind of avoidance ploy, that is. If so, it can bring the anti-avoidance provisions of the Income Tax Act into play,' explains The Practical Tax Loose Leaf Service.
  • On the other hand the tax treatment of spouses who are married in community of property is very different. 'Instead of having separate incomes and tax liabilities, the law regards spouses who are married in community of property as each having an equal share of the combined joint estate and the income earned,' says the Loose Leaf. This excludes your salary and any related income, like medical aid company contributions, travel allowances and other fringe benefits directly received as a result of your employment.

However, bear in mind that SARS doesn't care if you're married in or out of community of property, with or without an accrual.

If your main objective is to circumvent the tax laws and avoid paying tax by transferring income from one spouse to the other, 'SARS will enforce tax avoidance measures, and claim due tax and penalties from whichever spouse falls within the ambit of the anti-avoidance measures,' explains the Loose Leaf.

So how can you reduce marriage tax risks?

To protect your assets, you can draft an ante nuptial agreement before you get married. In it, you can stipulate the how assets and income will be transferred or allocated. This will help you reduce your tax risks.

So there you have it! Choose your marriage contract carefully it's far more than just a piece of paper!

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