Page 227 - SAIT Compendium 2016 Volume2

IN 12 Income Tax acT: InTeRPReTaTIon noTes IN 12
Income Tax Interpretation Note 12 Recoupments: Assets in a deceased estate
DATE: ACT: SECTION: SUBJECT:
1. Background
27 March 2003
Income Tax Act, 1962 (the Act)
Sections 8 (4) (a) and 25 (1) Recoupments: Assets in a deceased estate
In the case where the assets of a deceased estate are disposed of by the executor and a depreciation allowance was claimed by the deceased, an amount equal to the depreciation allowances could be subject to tax in the hands of either the estate or the heirs or legatees. These amounts (recoupments) are not always returned as income in the hands of the estate or in the hands of the heir/legatee, as the case may be. This could lead to an under declaration of income and circumstances where the estate, heirs or legatees could be liable for additional tax and interest.
The purpose of this note is to provide clarity regarding the application of the relevant provisions of the Act where assets are sold by the executor in the winding up of the estate and to serve as a guide with regard to income that is taxable in the hands of the estate and in the hands of the heirs/legatees.
The focus of this note is on sections 8 (4) (a) and 25 (1) of the Act. Any Capital Gains Tax (CGT) implications on the disposal of assets by an estate are not dealt with in this note.
2. The law and application
2.1 Section 8 (4) (a)
Section 8 (4) (a) provides for an amount to be included in the taxpayer’s income in respect of amounts previously allowed as deductions which have been recovered or recouped during the year of assessment. In terms of paragraph (n) of the de nition of ‘gross income’ in section 1 of the Act, such recoupments must be included in the taxpayer’s gross income.
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