The committee released its second interim report on the 24th of August. It is important to stress that these are only recommendations and not law until National Treasury drafts the legislation and the Minister of Finance puts it into effect by official proclamation.
So what are the key recommendations?
The committee recommends the removal of inter-spousal rollover relief that currently allows assets bequeathed to a spouse on death to escape estate duty until they become part of the surviving spouse’s estate on his or her death. To compensate, the committee in turn recommends a significant increase in the primary rebate, currently at R3.5 million, to R15 million, together with the introduction of a higher estate duty rate of 25% for net estates over R30 million.
Here again the committee targets the inter-spousal rollover relief on death and recommends its removal. This provision currently exempts all assets bequeathed to a spouse from triggering a capital gain or loss on death, and effectively allows the base cost to be carried over to the second dying’s estate where the gain will eventually be triggered on disposal. To compensate, the committee recommends a significant increase in the annual rebate on death, currently at R300,000, to R1 million.
Again the inter-spousal exemption is targeted which exempts any transfer of assets between spouses from donations tax. The committee recommends that only the annual exemption, currently at R100,000, may apply, together with any asset transferred for “reasonable maintenance purposes”.
Capital Transfer Tax
The question of a so called “Wealth Tax” was again considered by the committee. This type of tax, which the committee refers to as a “Capital Transfer Tax”, would take the form of a tax on capital levied every few years. The argument against the introduction of such a tax is that we already have various “Wealth Taxes” in the form of estate duty and capital gains tax. Furthermore, the introduction of a new tax is expensive, requiring the realignment of already overstretched resources, it is complex with no guarantee that it will raise significant additional funds and may even cost more to administer than the tax collected, as is the case with estate duty which comprises only 0.1% of the total taxes collected each year.
It is clear that National Treasury is determined to close down tax loopholes and has become particularly concerned about wealth shifting arrangements between spouses now that the definition of “spouse” is no longer the exclusive reserve of a man and woman bound by civil union.