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Davis tax committee
- 1. Welcome
- 3. ITS ONLY A PROPOSAL!
- 4. CAUTION! The Davis Tax Committee Estate Duty Report is exactly that. A report! This is not the law and no changes should be made to your personal structures until we have absolute certainty as to what changes are going to be implemented.
- 5. WHAT THE PRESS SAID
- 6. DTC recommendations may see Trusts receive a full frontal tax lobotomy Biznews Davis Tax Committee Estate Duty needs modernisation, seeks public comment Biznews Tax committee proposes overhaul of trusts Business Day Estate planning: Tax trouble for trusts Financial Mail
- 7. PANIC!
- 8. SYNOPSIS OF REPORT Trusts ability to shift taxable income be removed. The trust should be taxed as a separate taxpayer. Principle of inter-spouse exemptions and roll- overs should be withdrawn. Limits placed on inter-spouse donations. Contributions made to retirement funds in excess of the allowed annual deduction be deemed as an asset in calculating estate duty tax.
- 9. SYNOPSIS OF REPORT Both capital gains and estate duty tax be retained on death of the taxpayer. The primary estate duty abatement is inflation adjusted to R6 million. Estate duty tax remains at 20%. Donations tax remains at 20%.
- 10. SO TELL US THE GOOD NEWS!
- 11. GOOD NEWS No increase in any of the tax rates. No tax on interest-free loans to local trusts. No implementation of Capital Transfer Tax (CTT) and Net Wealth Tax (NWT). Can continue to write of the annual R100,000 donation.
- 12. DTC ON TRUSTS The only change that has been proposed with regards to trusts is the removal of the attribution principles as defined in section 7 as well as section 25B. These two sections allowed the trust to pass through any taxable income to one or more natural persons for the income to be taxed in their hands.油油
- 13. DTC ON TRUSTS The result is the trust will now be taxed as a separate taxpayer at its own flat rate. It has been proposed that this flat rate should be maintained at its existing levels i.e. 41%. An exception to this rule is the taxation of special trusts as defined.
- 14. END油OF油TRUSTS?
- 15. IS IT SO BAD? Maximum油tax油rate油for油an油individual油油 41%. Tax油rate油of油a油trust油油41% Maximum油CGT油rate油for油an油individual油油 13.7%. CGT油rate油for油a油trust油油27.4%.
- 16. IS IT SO BAD? In油essence油you油are油paying油an油extra油 13.7%油CGT油in油the油trust油to油save;油 Executors油fees油of油3.99%油on油the油growth,油 and Estate油duty油tax油of油20%油on油the油growth. In油your油hands油death油will油trigger油CGT油 whereas油in油the油trust油the油event油will油 determined油by油the油trustees.
- 17. COMPARISON BETWEEN INDIVIDUAL AND TRUST Amount invested: R10 million, Period of investment: 10 years, Returning an annual compound yield of 10%, Primary abatement: R6 million CGT exclusion on death: R300,000 Estate Duty Tax: 20%
- 18. INDIVIDUAL Initial investment: R10 million Maturity value after 10 years: R25,937,425 Growth: R15,937,425 Deemed CGT on death (@13.7%): R2,134,978 Executors fees (@3.99%): R1,034,903 Estate duty tax (@20%): R3,353,509 Total death duties: R6,523,390 Death duties as a % of Maturity value: 25.15%
- 19. TRUST Initial investment: R10 million Maturity value after 10 years: R25,937,425 Growth: R15,937,425 Deemed CGT on death: R0 Executors fees (@3.99%): R379,050 Estate duty tax (@20%): R700,000 Total death duties: R1,079,050 Death duties as a % of Maturity value: 4.16%
- 20. TRUST Contingent CGT within trust (@27.4%): R4,351,873 Total death duties including contingent CGT: R5,430,923 Death duties as a % of Maturity value: 20.94%
- 21. TRUST Difference between investing in own name vs trust: R1,092,466 in favour of TRUST. Reason is due to the interest-free loan to the trust being static and growth taking place in the trusts name. Furthermore, the loan to the trust can be reduced on an annual basis by using the R100,000 donation.
- 22. FOREIGN TRUSTS
- 23. FOREIGN TRUSTS Recommended that; Attribution principles remain in place. All distributions of foreign trusts be taxed as income. Inclusion of separate criminal charges in the Tax Administration Act that can be brought against taxpayers who fail to disclose direct or indirect interests in foreign trust arrangements.
- 24. LOVE and MARRIAGE (and tax)
- 25. CURRENT POSITION NO donations tax on assets donated to your spouse. NO estate duty tax on assets bequeathed to your spouse. NO capital gains tax on assets transferred to your spouse.
- 26. PROPOSED Spouses may still freely donate to each other without triggering donations tax. Excluded from this though is shares and fixed property. Bequests to spouses should no longer be exempt from estate duty tax or capital gains tax.
- 27. PROPOSED It is proposed that the portable spouse abatement be reframed. Currently the deceased estate (second dying) is permitted to increase the basic abatement by the unutilised portion of the primary abatement of any pre-deceased spouse (first dying). In other words, if the surviving spouse inherited some or all of the first dying spouses abatement then this amount can be added to his / her primary abatement.
- 28. PROPOSED If the inter-spouse abatement is withdrawn (currently known as section 4(q)) then it may be possible to advance the primary abatement of the surviving spouse(s) to be offset in the estate duty computation of the first deceased spouse. The estate of the surviving spouse would ultimately forfeit some or all of the primary abatement in the future. The surviving spouse can elect to pass his/her primary abatement. In essence this is almost a reversal of what is practised today.
- 29. CONTRIBUTION TO RETIREMENT FUNDS
- 30. CONTRIBUTION TO RETIREMENT FUNDS Current position: All contributions to retirement funds are exempt from estate duty tax. Proposed: All retirement fund contributions which are disallowed in the determination of taxable income will be deemed to be included in the estate duty computation.
- 31. QUESTIONS GORDON STUART gordons@sentineltrust.co.za 083 650 8613 011 656 2722