Page 1116 - SAIT Compendium 2016 Volume2

EXPLANATORY MEMORANDUM ON THE TAXATION LAWS AMENDMENT BILL, 2015
III. Proposal
It is proposed that the de nition of ‘retirement annuity fund’ in section 1(b)(x)(dd) be amended to allow for expatriates to withdraw a lump sum from their retirement annuity fund if one of the two criteria is met:
1. when the expatriates cease to be tax resident and leave South Africa; or
2. when the expatriates leave South Africa at the end of their work visa.
IV. Effective date
The proposed amendments will come into effect from 1 March 2016 and apply in respect of years of assessment commencing on or after that date.
1.4. REMOVING ANOMALIES FOR INCOME AND DISPOSALS TO AND FROM DECEASED ESTATE
[Applicable provisions: New section 9HA, sections 22(8)(b), 25,and paragraphs 40, 41 and paragraph 67 of the Eighth Schedule]
I. Background
Various provisions are contained in the Act that governs the tax treatment of the assets of a natural person upon and subsequent to their death. Section 25 makes provision for any income received or accrued and expenses incurred by the deceased estate for the bene t of ascertained heirs and legatees to be deemed to be income received or accrued or expenses incurred by those heirs and legatees. This approach was adopted in 1961 and was based on the premise that revenue gains and losses would not be triggered for the deceased person upon death, but that such revenue gains and losses could be taxed in the deceased estate or in the hands of an heir or legatee. The result of these provisions is that the deceased estate is treated as a conduit in respect of the income received by it if it has been derived for the immediate or future bene t of an ascertained heir or legatee.
Under this approach, the heir or legatee’s tax consequences are determined with reference to the income received by and accrued to the deceased estate, which can be netted against the related deductible expenses or allowances that would otherwise have been allowed in determining the taxable income of the deceased estate.
Upon the introduction of capital gains tax, a new approach was adopted in 2001. In this regard, paragraph 40 of the Eighth Schedule treats a deceased person as having disposed of all his or her assets (barring some assets such as those bequeathed to a surviving spouse) for a consideration equal to the market value of those assets on the date of death. All capital gains and losses are therefore recognised in the deceased hands. The deceased estate is treated as having acquired those assets at that market value and is subsequently subject to tax as a separate entity in respect of gains and losses from any disposals of assets it may thereafter undertake to persons other than the heirs or legatees of the deceased person.
II. Reasons for change
There is a mismatch between the application of the provisions dealing with capital gains tax and section 25 of the Act which results in anomalies and interpretational dif culties. The presence of the earlier provisions in section 25, in effect, allows for an heir or legatee to claim a deduction in respect of expenses not incurred by him or her. This goes against the fundamental principle underlying the Act, which requires a person to have actually borne the expense in order to be able to claim a deduction in respect of that expense. Secondly, section 25 may in some instances be negatively affected by the upfront taxation of accrued income that often does not coincide with the pay-out of monies from the deceased estate.
III. Proposal
The amendments proposed seek to align all the rules applying in respect of deceased person and deceased estates with the approach adopted in 2001. This will be achieved by moving the relevant rules to the main body of the Act. As such, a new exit charge upon death and a revised version of section 25 will now give effect to the rules currently contained in paragraphs 40 and 41 of the Eighth Schedule and will subject to tax all the gains and losses of the deceased person. In addition, roll over rules will be provided for in respect of assets inherited by a deceased person’s spouse that are currently embedded in paragraph 67 of the Eighth Schedule.
In principle, gains and losses of whatever nature will, in terms of the uni ed rules, be triggered on a person’s death with the current exceptions being preserved. Subsequently, income received by or accrued to the deceased estate will be taxed in the hands of the deceased estate and roll-over relief will be provided in respect of transfers from the deceased estate to any heir or legatee. As a rule, the legislation will allow for the deceased estate to be treated as a ‘natural person’ (as de ned in section 1 of the Act) for tax purposes. Some of the exemptions applicable to a natural person, excluding rebates contemplated in section 6, section 6A and section 6B, will apply to the deceased estate.
IV. Effective date
The proposed amendments will come into operation on 1 March 2016 and apply in respect of a person who dies on or after that date.
1.5. MEDICAL TAX CREDITS AS PART OF PAYE AND PROVISIONAL TAX: EMPLOYEES OVER 65 YEARS
[Applicable provisions: Section 6B (3) and paragraph 9(6) of the Fourth Schedule]
I. Background
Following the Minister’s announcement in the 2011 Budget, the incentive regime for medical aid contributions and other qualifying expenses was changed from a deduction method to a tax credit method. This amendment in the tax system was done in phases. Individuals under the age of 65 were migrated to the tax credit system from the 2012/13 year onwards, while individuals aged 65 years and older were only migrated from the 2014/15 year onwards.
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