Former ANC youth league leader, Julius Malema is in the news once again.
The Mail & Guardian reports that Malema initiated proceedings in court yesterday to avoid being sequestrated, after initially accepting liability for the R16million debt during settlement talks. SARS brought the application on the grounds that Malema can't pay his debts, because he's effectively bankrupt.
According to the report, Malema's about-turn in his sequestration hearing on Monday means he'll now have to prove to the court that he isn't insolvent and that he can pay his debts.
In the report, Marguerite Loots, an attorney at Willson Attorneys in Johannesburg says if Malema is successfully sequestrated, the master of the high court will appoint a trustee who will manage his debts for a period of about four or five years. This also means he won't be allowed to incur any debt for that period and he won't be allowed to be a director of a company.
Malema's case hasn't only cast the spotlight on his political future, it's also put attention on insolvency and the tax consequences. And today, that's what we'll look at.********************
An insolvent estate is taxed as follows:
An insolvent estate is taxed according to the type of taxpayer that was sequestrated.
This means if you're an individual SARS has declared insolvent, any income accruing to your insolvent estate will be taxed as an individual, says the Practical Tax Loose Leaf Service.
If it's your company or close corporation that has been declared insolvent, the estate will be taxed at corporate rates.
What about Trusts?
If the insolvent is a Trust, then the estate will be taxed at the rate that applies to Trusts.
Important: Bear in mind that if you're an insolvent individual, the insolvent estate won't qualify for the primary rebate and interest exemption that's applicable to individual taxpayers.
Now that you know the tax treatment of an insolvent estate, check out this article. It contains the different terms to help you understand insolvency better.
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