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Wills, Administration, & the Tax Acts

Advising your clients on their wills is a good time to advise them as well on tax (all the taxes)

Volume 1

By

Costa Divaris

Wills, Administration, & the Tax Acts

Advising your clients on their wills is a good time to advise them as well on tax (all the taxes)

By

Costa Divaris

2018 Edition

Terms and conditions

Wills, Administration, & the Tax Acts 2018 ed © 2018 C Divaris Bsp Seminars® Gauteng South Africa

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Disclaimer This work is not intended to constitute advice on the topics covered. The views expressed are those of the authors and publisher. While reasonable care has been taken to ensure the accuracy of this publication, the author and publisher expressly disclaim all and any liability to any person relating to anything done or omitted to be done or to the consequences thereof in reliance upon this work, and do not accept responsibility for any loss or damage that may be sustained as a result of reliance by any person on the information contained herein. In particular, anyone who may be affected by statutory provisions dealt with in this work is strongly advised to refer to the relevant Government Gazette as originally published.

Copyright ©2018 Costa Divaris/The Electronic Publishing Corp CC (referred to here as ‘the author’ and ‘the publisher’ respectively) Gauteng South Africa. This work is copyright under the Berne Convention. In terms of the Copyright Act 98 of 1978 and subject to the user rights detailed above, no part of this work may be reproduced or transmitted in any form or by any means, presently known or that may be devised,

mailto:[email protected]



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electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without permission in writing from the publisher. While any compilation and original features of legislation included in this work are copyright, s 12(8) of the Copyright Act provides, in part, that no copyright shall subsist in official texts of a legislative, administrative or legal nature.

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ISBN 978–0–928221–72–5

Latest legislation upon which this work is based The Tax Administration Laws Amendment Act 13 of 2017, the Rates and Monetary Amounts and Amendment of Revenue Laws Act 14 of 2017 and the Taxation Laws Amendment Act 17 of 2017.

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South African fiscal legislation


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South African fiscal legislation

Warning on the tax Acts

Every reasonable effort has been taken in this work accurately to represent the statute law in its latest form at the time of publication, with amendments being indicated by references to the relevant amending act given in small print below affected provisions. Actual application of the law requires knowledge of the detailed effective dates of such amendments; certainly, of those made seemingly close to the year of assessment or to the date of the transaction concerned

On the other hand, never consult earlier versions of South African fiscal legislation without checking forward in time to look for retroactive amendments.


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Quick contents


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Quick contents

Click on an item to go to that page

Wills, Administration, & the Tax Acts ................................................................ 3 Terms and conditions .......................................................................................... 5 South African fiscal legislation........................................................................... 7

Warning on the tax Acts ................................................................................... 7 Quick contents .................................................................................................... 9 Stylistic conventions—text ............................................................................... 11 Stylistic conventions—legislation .................................................................... 13 Contents—chapters, topics, headings ............................................................... 15 Contents—from the Estate Duty Act ................................................................ 25 Contents—from the Income Tax Act ................................................................ 27 Contents—from the Eighth Schedule ............................................................... 31 Contents—external material ............................................................................. 33 Contents—Tax Shock, Horror .......................................................................... 35 Contents—case law .......................................................................................... 37 Contents—main sections .................................................................................. 39 Contents—sections, subsections ....................................................................... 43 Chapter 1 .......................................................................................................... 51 Introduction ...................................................................................................... 51

Wills and the planner ..................................................................................... 51 Chapter 2 .......................................................................................................... 57 Donations ......................................................................................................... 57

An alternative to estate duty ........................................................................... 57 Chapter 3 .......................................................................................................... 93 Estate duty ........................................................................................................ 93

Corporate interests ......................................................................................... 93 Other assets .................................................................................................. 119

Chapter 4 ........................................................................................................ 157 Physical exit tax .............................................................................................. 157

Corporate interests ....................................................................................... 157 Other assets .................................................................................................. 169

Chapter 5 ........................................................................................................ 193 Exit tax on death ............................................................................................. 193

Corporate interests ....................................................................................... 193 Other assets .................................................................................................. 209

Chapter 6 ........................................................................................................ 223 Debt benefits................................................................................................... 223

Income tax .................................................................................................... 223 Capital gains tax ........................................................................................... 229

Chapter 7 ........................................................................................................ 235 Use and abuse of companies ........................................................................... 235

Quick contents


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Comparative rates of tax .............................................................................. 235 The owner-employee’s remuneration ........................................................... 239 Incorporation as a concept ............................................................................ 245 The corporate fallacy .................................................................................... 255 Holding company structures ......................................................................... 265 Small business corporations ......................................................................... 269

Chapter 8 ........................................................................................................ 273 Use and abuse of trusts ................................................................................... 273

Magical thinking .......................................................................................... 273 Types of trust................................................................................................ 277 How trusts pay tax ........................................................................................ 285 Section 25B: income tax .............................................................................. 291 Paragraph 80: CGT ........................................................................................ 299 Primary attribution: income tax .................................................................... 305 Primary attribution: CGT ............................................................................... 323 Rights of recovery ........................................................................................ 337 Loans to trusts by connected persons ........................................................... 339 Offshore fantasies ......................................................................................... 379 Offshore capital distributions ....................................................................... 383 Testamentary trusts ...................................................................................... 389 Testamentary trusts: case law ....................................................................... 395 Administration.............................................................................................. 413

Chapter 9 ........................................................................................................ 419 Limited interests ............................................................................................. 419

Estate duty and the CGT ................................................................................ 419 Chapter 10 ...................................................................................................... 435 Exchange control regulations ......................................................................... 435

An extract ..................................................................................................... 435 Chapter 11 ....................................................................................................... 437 Administration ................................................................................................ 437

Patrimonial consequences of death .............................................................. 437 Taxation of deceased estates: income tax ..................................................... 467 Taxation of deceased estates: CGT ................................................................ 485 Taxation of deceased estates: estate duty ..................................................... 491 Permitted disposals by the executor ............................................................. 493 General ......................................................................................................... 497

Stylistic conventions—text


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Stylistic conventions—text

This work follows all of the conventions set out in the latest edition of the Bsp Stylebook (C Divaris, DS McAllister), a free publication.

Legislative or contractual elements that are expressly and formally defined are referred to as terms, and are embraced, when necessary, by quotation marks. Other words (single words) and expressions (a group of words) that are effectively defined or are used by me as personal terms of art are shown, when necessary, in italics, without quotation marks. Thus ‘gross income’ but hidden definition.

Otherwise, quotation marks are used purely to indicate a formal, verbatim quotation arising within the text. When a quotation appears separately from the text and indented, no quotation marks are used, while paragraph-indentations are dispensed with in the first line of the quotation and in every first line following an interruption of the quotation by indented or hanging material. Tables might not necessarily follow these rules.

Inside a quotation, quotations within the text of the quotation are embraced by single quotation marks and quotations within those quotations with double quotation marks, subject to recycling should the nesting continue. Quotations shown separately from the text of a quotation are presented without quotation marks but subject to a further indentation.

Legislative material included here is, where relevant, reproduced from my The Estate Duty Act (45 of 1955) 2017 ed (December 2017), The Tax Administration Act (28 of 2011) 2017 edition (January 2018) and The Trust Property Control Act (57 of 1988) 2017 edition (January 2018). Extracts from the Income Tax Act are taken from my private representation and adaptation of parts of the act, based upon the consolidated version published by LexisNexis and, for contemporary amendments, the relevant statutes. Citations from case reports are reproduced from my The SA Common Law on Trusts—Chronological Database 2017 edition version 2 (September 2017), The SA Common Law on Wills—A Database Launch edition (2018) version 3 (April 2018), and Wills—SA Statute & Common Law Launch edition (2018) version 2 (April 2018).


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Stylistic conventions—legislation


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Stylistic conventions—legislation

Identifier Act, provision number (usually section, subsection; paragraph, subparagraph) Boxed heading, capitals and small capitals, title case, centred Principal subject-matter (usually section, subsection, continuation; paragraph, subparagraph, continuation. Followed by provision number in square parentheses Boxed heading, italicized, sentence case, centred Principal subject-matter of item, continuation, followed by provision number in square parentheses Boxed heading, sentence case, right-justified Principal subject-matter of sub-item, continuation Dates, periods, percentages, fractions Rendered in bold Outside parties Rendered in italics Cross-references Restated in short form within square parentheses Acts, self-references, Schedules, Parts Underlined Defined words within quotation marks Rendered in bold Defined words without quotation marks (‘as defined in’) Rendered in bold italics Quasi-defined words (‘as contemplated in’, ‘referred to’, ‘as defined in’ ‘as determined by’) Rendered in bold italics Apparent errors Either rectified within square parentheses or correction suggested within square parentheses and indicated by question mark Extracts from explanatory memoranda Rendered against shaded background Commentary, without heading, boxed, italicized Opinion on meaning or significance of or aid to interpretation of immediately preceding provision or part of a provision Commentary, headed ‘Legislative history’, boxed, italicized Details and effective date of amendment Commentary, headed ‘Past wording’, boxed, italicized Immediately preceding text of amended legislation


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Contents—chapters, topics, headings


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Wills, Administration, & the Tax Acts ................................................................ 3 Terms and conditions .......................................................................................... 5 South African fiscal legislation........................................................................... 7

Warning on the tax Acts ................................................................................... 7 Quick contents .................................................................................................... 9 Stylistic conventions—text ............................................................................... 11 Stylistic conventions—legislation .................................................................... 13 Contents—chapters, topics, headings ............................................................... 15 Contents—from the Estate Duty Act ................................................................ 25 Contents—from the Income Tax Act ................................................................ 27 Contents—from the Eighth Schedule ............................................................... 31 Contents—external material ............................................................................. 33 Contents—Tax Shock, Horror .......................................................................... 35 Contents—case law .......................................................................................... 37 Contents—main sections .................................................................................. 39 Contents—sections, subsections ....................................................................... 43 Chapter 1 .......................................................................................................... 51 Introduction ...................................................................................................... 51

Wills and the planner ..................................................................................... 51 The most neglected financial document of all ............................................. 51 How the state wants you to be advised on planning .................................... 51 The relentless move to incorporation ........................................................... 55 Purpose of this work .................................................................................... 55

Chapter 2 .......................................................................................................... 57 Donations ......................................................................................................... 57

An alternative to estate duty ........................................................................... 57 Donations tax discourages estate duty avoidance ........................................ 57 Residence and donations tax ........................................................................ 61 Why not pay donations tax?......................................................................... 62 Interspousal donations ................................................................................. 63

Capital gains tax considerations ................................................................ 64 Estate duty considerations ......................................................................... 65 Use of a trust for such purposes ................................................................ 66 Exchange control considerations ............................................................... 66

Donation of foreign property ....................................................................... 66 Exchange control considerations ............................................................... 67

Donation of use of farming property to a child ............................................ 67 The annual exemption .................................................................................. 72 The maintenance exemption ........................................................................ 73 Corporate donations ..................................................................................... 74



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Donation at instance .................................................................................. 74 Commercial companies have no business making donations .................... 75

Which donations are reportable?.................................................................. 75 Donations and the attribution rules .............................................................. 76 Donations and the capital gains tax.............................................................. 76 Kinds of and formalities for donations ........................................................ 77

Chapter 3 .......................................................................................................... 93 Estate duty ........................................................................................................ 93

Corporate interests ......................................................................................... 93 Corporate ownership at death ...................................................................... 93 What is property in an estate? ...................................................................... 93 Ordinarily resident deceased ........................................................................ 95

Implications (ordinarily resident) .............................................................. 95 Non-ordinarily resident deceased................................................................. 96

Stocks or shares ......................................................................................... 96 The exemption of foreign corporate interests ............................................ 98 Implications (not ordinarily resident) ...................................................... 100

Ordinarily resident v not so resident .......................................................... 100 Ordinarily resident ................................................................................... 100 The Republic ........................................................................................... 100

Change of place where ordinarily resident................................................. 102 Ceasing to be ordinarily resident ............................................................. 104 Becoming ordinarily resident .................................................................. 104

Valuation of corporate interests ................................................................. 104 The default valuation regime ..................................................................... 105

What is ‘fair market value’? .................................................................... 106 The valuation of unlisted shares................................................................. 107

Expansion of meaning of ‘share’ ............................................................. 109 Expansion of meaning of ‘company’ ....................................................... 109 Otherwise, normal valuation rules apply (1) ........................................... 110 Otherwise, normal valuation rules apply (2) ........................................... 111

Unlisted shares in a company owning farming land .................................. 111 Domestic location required ...................................................................... 113 What is a bona fide farming undertaking? ............................................... 113

Corporate interests disposed of during the liquidation............................... 113 The exclusions ......................................................................................... 114 The disposal must be by way of purchase and sale ................................. 114 The disposal must be bona fide ............................................................... 115

The corporate deduction ............................................................................ 115 Corporate ownership and estate duty ......................................................... 117

Other assets .................................................................................................. 119 Resetting the scene: what is property in an estate? .................................... 119 Ordinarily resident deceased ...................................................................... 121

The big, and shocking, exception ............................................................ 121 Implications (ordinarily resident) ............................................................ 122

Non-ordinarily resident deceased............................................................... 122 A strange inclusion in ‘actual’ property ..................................................... 123 Ordinarily resident and not so resident ...................................................... 124 Deemed property in an estate ..................................................................... 125

Deemed property—insurance products ................................................... 125



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Deemed property—exempt donations ..................................................... 131 Deemed property—under accrual system ................................................ 132 Deemed property—under deceased’s control .......................................... 133

Valuation of rights ..................................................................................... 136 The default valuation regime ..................................................................... 137 Rights disposed of during liquidation ........................................................ 137

The exclusions ......................................................................................... 137 The disposal must be by way of purchase and sale ................................. 138 The disposal must be bona fide ............................................................... 138

Use or occupation of property valuation rule ............................................ 138 Significant deductions ............................................................................... 139

Deduction of qualifying improvements ................................................... 139 Deduction of spousal accrual .................................................................. 140

Chapter 4 ........................................................................................................ 157 Physical exit tax .............................................................................................. 157

Corporate interests ....................................................................................... 157 On a change of residence ........................................................................... 157

What is an ‘asset’ for this purpose? ......................................................... 158 What is an ‘market value’ for this purpose? ............................................ 159 Currency of expenditure .......................................................................... 159

Residence of artificial persons ................................................................... 160 Exclusion of treaty persons ..................................................................... 161 How residence changes ........................................................................... 162

Other consequences of change of residence .............................................. 162 Exclusion from the operation of s 9H ........................................................ 167

Other assets .................................................................................................. 169 On a change of residence ........................................................................... 169

What is an ‘asset’ for this purpose? ......................................................... 170 What is an ‘market value’ for this purpose? ............................................ 170 Currency of expenditure .......................................................................... 170

Residence of natural persons ..................................................................... 171 Breaking ‘resident’ down into its component parts ................................... 172

1. Targeted entities .................................................................................. 172 2. Targeted natural persons ..................................................................... 173 3. Targeted nonresidents.......................................................................... 173 4. Targeted nonresidents—how to count days ......................................... 174 5. Targeted nonresidents—how to escape the system ............................. 177 6. Targeted companies and unincorporated persons ................................ 178 7. The treaty exclusion ............................................................................ 178 8. Cessation of residence during the year ................................................ 178

Primary tests of residence—natural persons .............................................. 179 Other consequences of change of residence .............................................. 187 Exclusions from the operation of s 9H ...................................................... 189

Assets in the CGT net ............................................................................... 189 Other assets ............................................................................................. 189

Don’t forget ‘trust’ property ...................................................................... 190 Don’t forget other offshore property.......................................................... 191

Chapter 5 ........................................................................................................ 193 Exit tax on death ............................................................................................. 193

Corporate interests ....................................................................................... 193



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Section 9HA of the Income Tax Act .......................................................... 193 The valuation rules ..................................................................................... 195

Listed financial instruments..................................................................... 196 Unlisted financial products ...................................................................... 196 Unlisted shares ........................................................................................ 196

Limited interests in shares ......................................................................... 198 Which tax applies? ..................................................................................... 198

If trading stock ......................................................................................... 200 If capital assets ........................................................................................ 200 The definition of ‘taxable income’ .......................................................... 200 When the deceased held corporate interests as trading stock .................. 201 Section 22(8) does not apply on death ..................................................... 203

Corporate ownership no panacea but… ..................................................... 203 Effect of s 9HA on nonresidents ................................................................ 205

Other assets .................................................................................................. 209 Section 9HA—resetting the scene ............................................................. 209 The valuation rules ..................................................................................... 209

Long-term policies................................................................................... 211 Farming land............................................................................................ 211 Default valuation rule for assets not specifically valued ......................... 211

Which tax applies? ..................................................................................... 211 Exclusions from deemed disposal on death ............................................... 211 1. Exclusion of spousal inheritance, or rollover ......................................... 212

Residence of surviving spouse ................................................................ 213 Transfer of ownership.............................................................................. 213 Timing of the deemed disposal, actual acquisition .................................. 214 Forms of acquisition by the surviving spouse ......................................... 215 Spousal rollover valuation ....................................................................... 215 But why here? .......................................................................................... 216

2. Exclusion of life policies ....................................................................... 216 3. Exclusion of retirement fund benefits .................................................... 218 Deemed cost to beneficiary ........................................................................ 218 Acquisition by beneficiary ......................................................................... 219 Don’t forget ‘trust’ property ...................................................................... 220 Don’t forget other offshore property .......................................................... 221

Chapter 6 ........................................................................................................ 223 Debt benefits ................................................................................................... 223

Income tax .................................................................................................... 223 Debt benefits .............................................................................................. 223 Exemption for deceased estates ................................................................. 226

The drafting ............................................................................................. 226 Donatio mortis causa ............................................................................... 226 Other debts .............................................................................................. 227

Capital gains tax ........................................................................................... 229 Debt benefits .............................................................................................. 229 Exemption for deceased estates ................................................................. 232

The drafting ............................................................................................. 233 Donatio mortis causa ............................................................................... 233 Other debts .............................................................................................. 233

Chapter 7 ........................................................................................................ 235



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Use and abuse of companies ........................................................................... 235 Comparative rates of tax .............................................................................. 235

Introduction ............................................................................................... 235 A discriminatory tax system ...................................................................... 235 Comparative effective rates ....................................................................... 236

The owner-employee’s remuneration ........................................................... 239 The concept of ‘optimum remuneration’ ................................................... 239 Constraints on the remuneration of owner-employees............................... 242

Caution advised ....................................................................................... 243 Directors’ fees ......................................................................................... 243 When to hire an attorney well-versed in criminal law ............................. 243

Incorporation as a concept ........................................................................... 245 Is incorporation allowed? .......................................................................... 245 Incorporation of a professional practice .................................................... 249 Incorporation of a sole-trader’s business ................................................... 249 Incorporation of a farming operation ......................................................... 250

Sheep leases............................................................................................. 250 Incorporation as a response to s 9HA ........................................................ 252 Abuse of the corporate form ...................................................................... 252

The corporate fallacy ................................................................................... 255 The corporate fallacy ................................................................................. 255

Is it fair to assume that all profits will be withdrawn? ............................ 258 When and when not to go for corporate ownership ................................... 258

Corporate ownership indicated or inevitable ........................................... 258 Corporate ownership plain dumb ............................................................ 259 Truly stupid incorporations—personal use assets ................................... 260 Corporations and intellectual property .................................................... 262

Holding company structures ........................................................................ 265 No harm, possibly some benefit ................................................................ 265

The restructuring reliefs .......................................................................... 265 A better group tax system ........................................................................ 265

Small business corporations ......................................................................... 269 Clear benefits ............................................................................................. 269 Utterly inaccessible definition ................................................................... 269

Chapter 8 ........................................................................................................ 273 Use and abuse of trusts ................................................................................... 273

Magical thinking .......................................................................................... 273 The sui generis fantasy .............................................................................. 273 The real purpose of trusts .......................................................................... 273 What trusts are most used for .................................................................... 275

Types of trust ............................................................................................... 277 Types of trust under the common law ........................................................ 277

Trusts inter vivos (made over) ................................................................. 277 Testamentary trusts (bequeathed) ............................................................ 277 Discretionary and vesting trusts .............................................................. 277 Bewinds and business trusts .................................................................... 278 Essentialia of a trust from the act ............................................................ 278

Valid and invalid trusts and their transactions ........................................... 281 How trusts pay tax ........................................................................................ 285

Effective rates of tax of trusts—income tax............................................... 285



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Effective rates of tax of trusts—capital gains tax ...................................... 285 Section 25B: income tax .............................................................................. 291

How s 25B affects a trust’s gross income .................................................. 291 The attribution rules ................................................................................ 291 Secondary attribution............................................................................... 293 Vested rights by way of a discretion........................................................ 294 The link with ‘gross income’ ................................................................... 294 The conduit principle and s 25B .............................................................. 295 Real-time distributions ............................................................................ 296 More on real-time distributions ............................................................... 297 Selecting beneficiaries ............................................................................. 297

Paragraph 80: CGT ........................................................................................ 299 How para 80 affects a trust’s taxable income ............................................ 299

Disposal to beneficiary ............................................................................ 299 Capital gain distributed to beneficiary ..................................................... 302 Issues ....................................................................................................... 303 Real-time distributions ............................................................................ 303

Primary attribution: income tax .................................................................... 305 What almost everyone is unaware of—primary attribution ....................... 305 Acts of liberality ........................................................................................ 305 Inter-spousal diversion (s 7(2)) .................................................................. 305

Act of liberality or tax avoidance ............................................................ 306 Income from trade ................................................................................... 306

Division between spouses (s 7(2A), (2B), (2C) ......................................... 307 In-community marriages ......................................................................... 309 More on in-community marriages ........................................................... 310 Precedence ............................................................................................... 310

Diversion to minor children (s 7(4) and (5)) .............................................. 310 What about major children? .................................................................... 312

Distribution postponed (s 7(5)) .................................................................. 312 Difference between s 7(5) and s 7(8) ....................................................... 313

Revocable diversion (s 7(6)) ...................................................................... 314 Reversible diversion (s 7(7)) ...................................................................... 314

Transfer subject to clog (s 7(7)(a)) .......................................................... 315 Transfer subject to claw-back (s 7(7)(b)) ................................................ 316 Attribution back to donor ........................................................................ 316

Resident-to-nonresident diversion (s 7(8))................................................. 317 Expenditure, allowances and losses ......................................................... 318 Difference between s 7(5) and s 7(8) ....................................................... 318

Cheap disposal of assets (s 7(9)) ................................................................ 318 Reporting requirement (s 7(10)) ................................................................ 319 Maintenance orders and retirement funds (s 7(11)) ................................... 320

Primary attribution: CGT ............................................................................... 323 Acts of liberality ........................................................................................ 323 Inter-spousal diversion (para 68(1)) ........................................................... 323

Act of liberality or tax avoidance ............................................................ 324 Capital gains from trade .......................................................................... 324 Comparison with the income tax inter-spousal rules ............................... 325

Diversion to minor child (para 69) ............................................................. 325 Distribution postponed (para 70) ............................................................... 326



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Difference between s 7(5) and para 70 .................................................... 328 Difference between para 70 and para 72 ................................................. 328

Power to revoke or redirect (para 71) ........................................................ 328 Resident-to-nonresident diversion (para 72) .............................................. 329

Difference between para 70 and para 72 ................................................. 330 The mysterious capping rule (para 73) ...................................................... 330

This is a taxation system? ........................................................................ 331 Rule of precedence .................................................................................. 332

Rights of recovery ........................................................................................ 337 Rights of recovery...................................................................................... 337

Loans to trusts by connected persons ........................................................... 339 Commencement of s 7C ............................................................................. 339 Targeted loans ............................................................................................ 340

What is any loan, advance or credit? ....................................................... 340 Who are the parties? ................................................................................ 341 What is the targeted transaction? ............................................................. 343

Loan, advance or credit acquired by cession ............................................. 343 Yet more prohibited losses ........................................................................ 344

A missing definition ................................................................................ 345 Tax relief denied ...................................................................................... 345 But denied to whom? ............................................................................... 345 It’s a universal prohibition ...................................................................... 345 Provisions already applying to a reduction of debt ................................. 346 CGT provisions already prohibiting connected-person losses .................. 346

A new tax base, for a new donation ........................................................... 346 Trigger for an annual donation ................................................................ 347 Unacceptable interest rates ...................................................................... 347 How to compute the annual notional donation ........................................ 348 Date of the notional donation .................................................................. 348 Identity of the notional donor .................................................................. 349 Identifying the debt due ........................................................................... 349

How donations tax works, in the context ................................................... 349 Validity .................................................................................................... 349 Nonresidents ............................................................................................ 349 Date of donation ...................................................................................... 350 Exemptions .............................................................................................. 350 Instanced transactions.............................................................................. 350 Marriages in community ......................................................................... 350 Liability for the tax .................................................................................. 351 Payment ................................................................................................... 351 Rate of tax ............................................................................................... 352

So what is the annual cost? ........................................................................ 352 What if the debt due is worth less? ............................................................ 352 Policing? .................................................................................................... 353 Multiple lenders ......................................................................................... 354

Identifying the debt due ........................................................................... 355 More than one connected instancing ....................................................... 355 Part-donations.......................................................................................... 355 Can we be clear here? .............................................................................. 355

The inevitable exemptions ......................................................................... 355



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The exemptions ....................................................................................... 357 Identifying the debt due ........................................................................... 358 Exemption for vested beneficiaries (in a bewind) ................................... 358 Exemption for financing of primary residence ........................................ 360 Exemption when dividends tax payable .................................................. 362 Exemption when trust is share-incentive trust ......................................... 364

Commentary—s 7C ................................................................................... 366 Offshore fantasies ......................................................................................... 379

A great money-spinner—the offshore trust................................................ 379 But it might be a fiscal trust ....................................................................... 379 Essentialia of a fiscal trust ......................................................................... 380

Offshore capital distributions ....................................................................... 383 Capital distributions—income tax (s 25B(2A)) ......................................... 383 Capital of a nonresident trust ..................................................................... 384 Capital distributions—capital gains tax (para 80(3)) ................................. 385 Capital of a nonresident trust ..................................................................... 386

Testamentary trusts ...................................................................................... 389 Testamentary trusts .................................................................................... 389 Commentary—testamentary trusts ............................................................. 389 Golden rules for the executor ..................................................................... 391 Incorporation by reference ......................................................................... 393 Bequest to trust inter vivos ......................................................................... 394

Testamentary trusts: case law ....................................................................... 395 Case law—testamentary trusts ................................................................... 395

Administration.............................................................................................. 413 Commentary—administration .................................................................... 413

Chapter 9 ........................................................................................................ 419 Limited interests ............................................................................................. 419

Estate duty and the CGT ................................................................................ 419 Estate duty ................................................................................................. 419 Capital gains tax......................................................................................... 423 Commentary—limited interests ................................................................. 425

Chapter 10 ...................................................................................................... 435 Exchange control regulations ......................................................................... 435

An extract ..................................................................................................... 435 Legacies and distributions.......................................................................... 435

Chapter 11 ....................................................................................................... 437 Administration ................................................................................................ 437

Patrimonial consequences of death .............................................................. 437 Common and statutory law ........................................................................ 437 How property passes on death ................................................................... 439 Commentary—patrimonial consequences of death.................................... 442 Commentary—adiation and repudiation under a will ................................ 453 Redistribution agreements ......................................................................... 460 Commentary—redistribution agreements .................................................. 460 Family arrangements .................................................................................. 462 Commentary—family arrangements .......................................................... 462

Taxation of deceased estates: income tax ..................................................... 467 Returns ....................................................................................................... 467 All post mortem income is estate’s income................................................ 467



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Testing some sample exemptions ............................................................ 469 Deemed acquisitions by and from estates .................................................. 470

Acquisition of deceased’s assets ............................................................. 472 Beneficiary rollover ................................................................................... 474

Timing ..................................................................................................... 475 Cost to the estate ..................................................................................... 475 Date of disposal ....................................................................................... 476

Interspousal rollover .................................................................................. 476 Disposal by estate of assets to surviving spouse ..................................... 477

A deceased estate as a natural person ........................................................ 478 Estate as natural person ........................................................................... 479

Elective deferral to avoid estate liquidation of asset .................................. 479 Tax debt arising from elective deferral ...................................................... 480 Executor’s position under s 25 ................................................................... 480 Taxation of ‘old’ estates ............................................................................ 482

Taxation of deceased estates: CGT ................................................................ 485 Normal CGT rules apply ............................................................................. 485 Commentary—deceased estate as ‘person’ ............................................... 485 Consequences for executor ........................................................................ 488

Taxation of deceased estates: estate duty ..................................................... 491 Rights disposed of during the liquidation .................................................. 491

Permitted disposals by the executor ............................................................. 493 Under the Administration of Estates Act ................................................... 493

General ......................................................................................................... 497 Commentary—administration ................................................................... 497 Case law—administration .......................................................................... 504


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Contents—from the Estate Duty Act


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Contents—from the Estate Duty Act


Estate Duty Act 1—interspousal inheritance (s 4(q)) ....................................... 65 Estate Duty Act 2—charging provision (s 3(1)) ............................................... 93 Estate Duty Act 3—‘property’ (s 3(2)) ............................................................. 94 Estate Duty Act 4—‘stocks or shares’ (s 1(1)) ................................................. 97 Estate Duty Act 5—‘company’ (s 1(1)) ............................................................ 98 Estate Duty Act 6—default valuation rule (s 5(1)(g)) .................................... 105 Estate Duty Act 7—‘fair market value’ (s 1(1)) ............................................. 106 Estate Duty Act 8—valuation of unlisted shares (s 5(1)(f)bis) ....................... 107 Estate Duty Act 9—‘shares’, ‘company’ (s 5(5)) ........................................... 109 Estate Duty Act 10—‘close corporation’ (s 1(1)) ........................................... 110 Estate Duty Act 11—incorporated farming operations (s 5(1A)) ................... 112 Estate Duty Act 12—‘fair market value’ (s 1(1)) ........................................... 112 Estate Duty Act 13—valuation of property sold (s 5(1)(a)) ........................... 114 Estate Duty Act 14—the corporate deduction (s 4(p)) ................................... 115 Estate Duty Act 15—charging provision (s 3(1)) ........................................... 119 Estate Duty Act 16—‘property’ (s 3(2)) ......................................................... 119 Estate Duty Act 17—insurance products as property (s 3(3)(a)).................... 125 Estate Duty Act 18—‘domestic policy’ (s 1(1)) ............................................. 127 Estate Duty Act 19—‘family company’ (s 1(1)) ............................................ 131 Estate Duty Act 20—exempt donations as property (s (3)(b)) ....................... 131 Estate Duty Act 21—marital claim as property (s (3)(cA)) ............................ 133 Estate Duty Act 22—competent-to-dispose property (s (3)(d)) ..................... 133 Estate Duty Act 23—dictionary for s 3(3)(d) (s 3(5)) .................................... 134 Estate Duty Act 24—valuation of property sold (s 5(1)(a)) ........................... 137 Estate Duty Act 25—cheap user rights ignored (s 5(4)) ................................. 138 Estate Duty Act 26—deduction of improvements (s 4(i)) .............................. 139 Estate Duty Act 27—deduction of spousal accrual (s 4(q)) ........................... 140 Estate Duty Act 28—limited interests as property (s 3(2)(a), (b)) ................. 419 Estate Duty Act 29—limited interests deducted (s 4(g), (j), (m)) ................... 420 Estate Duty Act 30—value of limited interest (s 5(1)) ................................... 421 Estate Duty Act 31—annual value (s 5(2)) ..................................................... 423 Estate Duty Act 32—life expectancy of artificial persons (s 5(3)) ................. 423 Estate Duty Act 33—valuation of property sold (s 5(1)(a)) ........................... 491


—26 —

Contents—from the Income Tax Act


—27 —



Income Tax Act 1—donations tax charging provision (s 54) ........................... 57 Income Tax Act 2—rate of donations tax (s 64) .............................................. 57 Income Tax Act 3—‘donation’ (s 55(1)) .......................................................... 58 Income Tax Act 4—cheap dispositions as donations (s 58(1)) ........................ 61 Income Tax Act 5—interspousal exemption (s 56(1)(b)) ................................. 64 Income Tax Act 6—donation of foreign property (s 56(1)(g)) ......................... 66 Income Tax Act 7—donation of farm usage (s 56(1)(m)) ................................ 67 Income Tax Act 8—annual exemption (s 56(2)(b)) ......................................... 72 Income Tax Act 9—maintenance exemption (s 56(2)(c)) ................................ 74 Income Tax Act 10—corporate donation at instance (s 57) ............................. 74 Income Tax Act 11—‘donation’ (s 55(1)) ........................................................ 77 Income Tax Act 12—cheap dispositions as donations (s 58(1)) ...................... 77 Income Tax Act 13—timing of donation (s 55(3)) ........................................... 78 Income Tax Act 14—‘resident’ (s 1(1)) ......................................................... 102 Income Tax Act 15—‘dividend’ (s 1(1)) ........................................................ 110 Income Tax Act 16—exempt donations (s 56(1)(c), (d)) ............................... 132 Income Tax Act 17—terminating residence (s 9H(3)(a))............................... 157 Income Tax Act 18—‘asset’, ‘market value’ (s 9H(1)) .................................. 158 Income Tax Act 19—currency of expenditure (s 9H(7)) ................................ 159 Income Tax Act 20—‘resident’ (s 1(1)) ......................................................... 160 Income Tax Act 21—split year, deemed dividend (s 9H(3)(c)) ..................... 162 Income Tax Act 22—residence change & returns (s 66(13)(a)(c)) ................ 163 Income Tax Act 23—liability for dividends tax (s 64EA(1)) ......................... 164 Income Tax Act 24—clawbacks (s 9H(3)(e), (f)) ........................................... 165 Income Tax Act 25—assets caught in CGT net (s 9H(4)(a), (c)) .................... 168 Income Tax Act 26—terminating residence (s 9H(2)) ................................... 169 Income Tax Act 27—‘asset’, ‘market value’ (s 9H(1)) .................................. 170 Income Tax Act 28—currency of expenditure (s 9H(7)) ................................ 171 Income Tax Act 29—‘resident’ (s 1(1)) ......................................................... 171 Income Tax Act 30—split year of assessment (s 9H(2)(b), (c)) ..................... 187 Income Tax Act 31—residence change & returns (s 66(13)(a)(c)) ................ 187 Income Tax Act 32—assets caught in CGT net (s 9H(4)(a), (c)) .................... 189 Income Tax Act 33—other excluded assets (s 9H(4)(d), (e), (f)) ................... 190 Income Tax Act 34—deemed disposal by deceased (s 9HA(1)) .................... 193 Income Tax Act 35—‘dividend’ (s 1(1)) ........................................................ 197 Income Tax Act 36—‘trading stock’ (s 1(1)) ................................................. 199 Income Tax Act 37—‘taxable income’ (s 1(1)).............................................. 200 Income Tax Act 38—inclusion of taxable capital gain (s 26A) ..................... 201 Income Tax Act 39—accounting for trading stock (s 22(1), (2)) ................... 202 Income Tax Act 40—‘gross income’ (s 1(1)) ................................................. 205 Income Tax Act 41—deemed disposal by deceased (s 9HA(1)) .................... 209



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Income Tax Act 42—deemed disposal exclusions (s 9HA(1)) ....................... 211 Income Tax Act 43—inter-spousal dispositions (s 9HA(2)) .......................... 212 Income Tax Act 44—debt benefits (s 19) ....................................................... 223 Income Tax Act 45—‘gross income’ (s 1(1)) ................................................. 240 Income Tax Act 46—general deduction formula (1) (s 11(a)) ....................... 241 Income Tax Act 47—general deduction formula (2) (s 23(g)) ....................... 241 Income Tax Act 48—taxable income from farming (s 26) ............................. 251 Income Tax Act 49—farming stocks (1st Sch para 3) ..................................... 251 Income Tax Act 50—inclusion of taxable capital gain (s 26A)...................... 256 Income Tax Act 51—intragroup cash dividends (s 64F(1)(a)) ....................... 266 Income Tax Act 52—intragroup, in kind (s 64FA(1)(b)) ............................... 266 Income Tax Act 53—‘small business corporation’ (s 12E(4)) ....................... 269 Income Tax Act 54—‘taxable income’ (s 1(1)) .............................................. 285 Income Tax Act 55—taxable capital gains (s 26A) ........................................ 286 Income Tax Act 56—taxable capital gain (s 1(1)) .......................................... 286 Income Tax Act 57—trust v beneficiaries (s 25B(1))..................................... 292 Income Tax Act 58—trusts v beneficiaries (s 25B(2)) ................................... 294 Income Tax Act 59—inclusion of taxable capital gain (s 26A)...................... 300 Income Tax Act 60—inter-spousal diversion (s 7(2)) .................................... 305 Income Tax Act 61—inter-spousal (s 7(2A), (2B), (2C)) ............................... 307 Income Tax Act 62—‘income’ (s 1(1)) .......................................................... 309 Income Tax Act 63—minor child (s 7(3), (4)) ............................................... 311 Income Tax Act 64—undistributed income (s 7(5)) ....................................... 312 Income Tax Act 65—revocable distribution (s 7(6)) ...................................... 314 Income Tax Act 66—cession of income (s 7(7)) ............................................ 315 Income Tax Act 67—diversion to nonresident (s 7(8)) .................................. 317 Income Tax Act 68—cheap disposal (s 7(9)) ................................................. 319 Income Tax Act 69—reporting duty (s 7(10)) ................................................ 319 Income Tax Act 70—special divorce rule (s 7(11)) ....................................... 320 Income Tax Act 71—recovery (s 91(4), (4A), (5))......................................... 337 Income Tax Act 72—‘person’ (s 1(1)) ........................................................... 339 Income Tax Act 73—loan to connected trust (s 7C(1)) .................................. 340 Income Tax Act 74—‘connected person’ (s 1(1)) .......................................... 342 Income Tax Act 75—prohibited deduction of losses (s 7C(1A)) ................... 343 Income Tax Act 76—prohibited deduction of losses (s 7C(2)) ...................... 344 Income Tax Act 77—deemed donation to trust (s 7C(3)) .............................. 346 Income Tax Act 78—‘official rate of interest’ (s 1(1)) .................................. 347 Income Tax Act 79—payment of donations tax (s 60) ................................... 351 Income Tax Act 80—multiple lenders (s 7C(4)) ............................................ 354 Income Tax Act 81—exemptions (s 7C(5)).................................................... 356 Income Tax Act 82—exemption, vested beneficiaries (s 7C(5)(b)) ............... 358 Income Tax Act 83—financing primary residence (s 7C(5)(d)) ..................... 360 Income Tax Act 84—dividends tax payable (s 7C(5)(g)) ............................... 362 Income Tax Act 85—deemed dividend (dividends tax) (s 64E(4)) ................ 363 Income Tax Act 86—dividends tax payable (s 7C(5)(g)) ............................... 364 Income Tax Act 87—‘equity instrument’ (s 8C(7)) ....................................... 365 Income Tax Act 88—‘trust’ (s 1(1)) ............................................................... 379 Income Tax Act 89—nonresident trust (s 25B(2A)) ...................................... 383 Income Tax Act 90—residence change & returns (s 66(13)(a)(c)) ................ 467 Income Tax Act 91—taxation of deceased estates (s 25(1))........................... 467



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Income Tax Act 92—‘income’ (s 1(1)) .......................................................... 468 Income Tax Act 93—‘gross income’ (s 1(1)) ................................................. 468 Income Tax Act 94—acquisition of deceased’s assets (s 25(2)) .................... 471 Income Tax Act 95—spousal valuation rule (s 9HA(2)(b)) ........................... 474 Income Tax Act 96—disposal by estate to beneficiaries (s 25(3)) ................. 474 Income Tax Act 97—disposal by estate to spouse (s 25(4)) .......................... 477 Income Tax Act 98—estate as natural person (s 25(5)) ................................. 479 Income Tax Act 99—elective deferral (s 25(6)) ............................................. 479 Income Tax Act 100—tax debt (s 25(7)) ........................................................ 480 Income Tax Act 101—‘person’ (s 1(1)) ......................................................... 485


—30 —

Contents—from the Eighth Schedule to the Income Tax Act


—31 —

Contents—from the Eighth Schedule


Eighth Schedule 1—inter-spousal transfer (para 67(1)(a), (3)) ........................ 64 Eighth Schedule 2—what is a disposal (para 11(1)) ......................................... 76 Eighth Schedule 3—‘asset’ (para 1(1)) .......................................................... 158 Eighth Schedule 4—‘asset’ (para 1(1)) .......................................................... 194 Eighth Schedule 5—CGT valuation regime (para 31(1), (3)) .......................... 195 Eighth Schedule 6—application of the CGT (para 2) ...................................... 206 Eighth Schedule 7—CGT valuation regime (para 31(1), (4)) .......................... 210 Eighth Schedule 8—tax-free life policies (para 55) ....................................... 217 Eighth Schedule 9—tax-free retirement funds (para 54) ................................ 218 Eighth Schedule 10—debt benefits (para 12A) .............................................. 229 Eighth Schedule 11—anti-avoidance provision (para 38(1)) ......................... 250 Eighth Schedule 12—the inclusion rate (para 10) .......................................... 255 Eighth Schedule 13—personal use assets (para 53) ....................................... 261 Eighth Schedule 14—taxable capital gain (para 10) ...................................... 287 Eighth Schedule 15—‘net capital gain’ (para 1) ............................................ 287 Eighth Schedule 16—net capital gain (para 8) ............................................... 288 Eighth Schedule 17—trust v beneficiaries (para 80(1)) ................................. 299 Eighth Schedule 18—CGT charging provision (para 2(1)) ............................. 300 Eighth Schedule 19—disposals (para 11(1)(d)).............................................. 301 Eighth Schedule 20—trust v beneficiaries (para 80(2)) ................................. 302 Eighth Schedule 21—spousal attribution (para 68) ........................................ 323 Eighth Schedule 22—diversion to minor child (para 69) ............................... 325 Eighth Schedule 23—undistributed gain (para 70) ......................................... 326 Eighth Schedule 24—revocable gain (para 71) .............................................. 328 Eighth Schedule 25—resident to nonresident (para 72) ................................. 329 Eighth Schedule 26—income & gain (para 73) .............................................. 330 Eighth Schedule 27—‘primary residence’ (para 44) ...................................... 360 Eighth Schedule 28—‘an interest’ (para 44) .................................................. 361 Eighth Schedule 29—from nonresident trust (para 80(3)) ............................. 385 Eighth Schedule 30—market value (para 31(1)(d), (e)) ................................. 424 Eighth Schedule 31—annual value (para 31(2))............................................. 424 Eighth Schedule 32—base cost of asset (para 20(1)(a)) ................................. 476


—32 —

Contents—external material


—33 —

Contents—external material

External material 1—from the Attorneys Act .................................................. 51 External material 2—from the Tax Administration Act ................................... 53 External material 3—from the Tax Administration Act ................................... 54 External material 4—from General Laws Amendment Act, 1956 ................... 79 External material 5—from the Maritime Zones Act ....................................... 101 External material 6—from the Long-term Insurance Act ............................... 127 External material 7—from the Long-term Insurance Act ............................... 128 External material 8—from the SARS Interpretation Note 6 ............................. 161 External material 9—from the Administration of Estates Act ........................ 214 External material 10—from the Copyright Act .............................................. 262 External material 11—from the Trust Property Control Act .......................... 277 External material 12—from the Trust Property Control Act .......................... 279 External material 13—from the Children’s Act ............................................. 311 External material 14—from the Pension Funds Act ....................................... 320 External material 15—from the Value-Added Tax Act .................................. 380 External material 16—from the Transfer Duty Act ........................................ 380 External material 17—from the Administration of Estates Act ...................... 391 External material 18—from the Administration of Estates Act ...................... 392 External material 19—from the Trust Property Control Act .......................... 392 External material 20—from the Administration of Estates Act ...................... 439 External material 21—from the Administration of Estates Act ...................... 440 External material 22—from the Administration of Estates Act ...................... 440 External material 23—from the Administration of Estates Act ...................... 472 External material 24—from the Administration of Estates Act ...................... 493 External material 25—from the Administration of Estates Act ...................... 493 External material 26—from the Administration of Estates Act ...................... 493 External material 27—from the Administration of Estates Act ...................... 494 External material 28—from the Administration of Estates Act ...................... 494 External material 29—from the Administration of Estates Act ...................... 495 External material 30—from the Administration of Estates Act ...................... 495


—34 —

Contents—Tax Shock, Horror newsletter


—35 —

Contents—Tax Shock, Horror


From TSH 1—on donations and ‘donations’ .................................................... 59 From TSH 2—donations in kind ...................................................................... 63 From TSH 3—habitatio ................................................................................... 68 From TSH 4—habitatio ................................................................................... 69 From TSH 5—precarium ................................................................................. 71 From TSH 6—‘like interest’............................................................................. 71 From TSH 7—which donations are reportable? ............................................... 75 From TSH 8—donatio mortis causa ................................................................ 79 From TSH 9—donatio mortis causa and an executor’s fees ............................ 81 From TSH 10—donatio mortis causa .............................................................. 82 From TSH 11—common-law and executory donations ................................... 84 From TSH 12—common-law donations v ‘donation’ ...................................... 86 From TSH 13—executory donations ................................................................ 89 From TSH 14—pactum succesorium ............................................................... 91 From TSH 15—‘buy-and-sell’ policies .......................................................... 129 From TSH 16—section 3(3)(d) of the Estate Duty Act (1) ............................ 134 From TSH 17—section 3(3)(d) of the Estate Duty Act (2) ............................ 135 From TSH 18—stingy husbands .................................................................... 141 From TSH 19—dividends and the exit taxes .................................................. 164 From TSH 20—the Tradehold fiasco ............................................................. 166 From TSH 21—role of the Immigration Act .................................................. 175 From TSH 22—unacknowledged change of residence .................................. 185 From TSH 23—trusts and the exit taxes......................................................... 186 From TSH 24—change of residence and trading stock .................................. 186 From TSH 25—change of residence and split years ...................................... 188 From TSH 26—ceding the fruits of your personal labour .............................. 245 From TSH 27—ceding the fruits of your personal labour (2) ........................ 247 From TSH 28—the corporate fallacy ............................................................. 259 From TSH 29—official rate of interest .......................................................... 353 From TSH 30—soft loans are donations ........................................................ 366 From TSH 31—more on s 7C......................................................................... 368 From TSH 32—s 7C and your primary residence .......................................... 370 From TSH 33—more on s 7C and your primary residence ............................ 371 From TSH 34—a last, bad word on s 7C........................................................ 372 From TSH 35— time to stop being stupid about s 7C .................................... 372 From TSH 36—a termination of legitimate expectations? ............................. 374 From TSH 37—the magical clause that defeats s 7C ..................................... 375 From TSH 38—did your response to s 7C invalidate your trust? ................... 376 From TSH 39—testamentary trusts ................................................................ 389 From TSH 40—testamentary trust as contract ............................................... 390 From TSH 41—incorporation by reference .................................................... 393

Contents—Tax Shock, Horror newsletter


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From TSH 42—wills: incorporation by reference .......................................... 394 From TSH 43—accountants and auditors ....................................................... 413 From TSH 44—independent trustees ............................................................. 414 From TSH 45—family business trusts ............................................................ 415 From TSH 46—transfer duty exemption ........................................................ 416 From TSH 47—transfer duty exemption ........................................................ 417 From TSH 48—usufructs (1) .......................................................................... 425 From TSH 49—usufructs (2) .......................................................................... 427 From TSH 50—usufructs (3) .......................................................................... 428 From TSH 51—servitudes (1) ........................................................................ 431 From TSH 52—servitudes (2) ........................................................................ 432 From TSH 53—duration of a fideicommissum ............................................... 432 From TSH 54—the de Leef case ..................................................................... 442 From TSH 55—more on the de Leef case ....................................................... 444 From TSH 56—property law and tax ............................................................. 445 From TSH 57—patrimonial consequences of death ....................................... 447 From TSH 58—insolvency law out on a limb ................................................ 449 From TSH 59—what vests upon death? ......................................................... 451 From TSH 60—adiation ................................................................................. 453 From TSH 61—repudiation ............................................................................ 454 From TSH 62—repudiation in error ............................................................... 456 From TSH 63—the Gounden case .................................................................. 457 From TSH 64—statutory renunciations .......................................................... 459 From TSH 65—redistribution agreements...................................................... 460 From TSH 66—family arrangements ............................................................. 462 From TSH 67—interest exemption for deceased estates ................................ 470 From TSH 68—how ‘old’ estates were (and are) taxed ................................. 482 From TSH 69—deceased estate or trust as ‘person’ ....................................... 485 From TSH 70—‘spouses’ ............................................................................... 497 From TSH 71—assistance to executors .......................................................... 497 From TSH 72—Guardian’s Fund ................................................................... 499 From TSH 73—debts due by the deceased ..................................................... 500 From TSH 74—‘spouse’ ................................................................................ 501 From TSH 75—lying for inspection ............................................................... 501 From TSH 76—‘spouses’ ............................................................................... 503

Contents—case law


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Contents—case law


Case law 1—Kuttel ......................................................................................... 179 Case law 2—Ex Parte Melle and Others ........................................................ 395 Case law 3—Crookes, NO and Another v Watson and Others ........................ 396 Case law 4—Estate Freedman v Freedman and Others ................................ 396 Case law 5—Dempers and Others v the Master and Others .......................... 399 Case law 6—Braun v Blann and Another NNO ............................................... 403 Case law 7—Braun v Blann and Botha NNO and Another .............................. 407 Case law 8—Jowell v Bramwell-Jones and Others ........................................ 409 Case law 9—Administrators, Estate Richards v Nichol & Another ............... 410 Case law 10—Moosa NO and Others v Harnaker and Others ........................ 504


—38 —

Contents—main sections


—39 —



Section 54—ITA ................................................................................................ 57 Section 64—ITA ................................................................................................ 57 Section 55—ITA ................................................................................................ 58 Section 58—ITA ................................................................................................ 61 Section 56—ITA ................................................................................................ 64 8th Sch para 67 .................................................................................................. 64 Section 4—EDA ................................................................................................ 65 Section 56—ITA ................................................................................................ 66 Section 56—ITA ................................................................................................ 67 Section 56—ITA ................................................................................................ 72 Section 56—ITA ................................................................................................ 74 Section 57—ITA ................................................................................................ 74 8th Sch para 11 .................................................................................................. 76 Section 55—ITA ................................................................................................ 77 Section 58—ITA ................................................................................................ 77 Section 55—ITA ................................................................................................ 78 Section 3—EDA ................................................................................................ 93 Section 3—EDA ................................................................................................ 94 Section 1—EDA ................................................................................................ 97 Section 1—EDA ................................................................................................ 98 Section 1—ITA ............................................................................................... 102 Section 5—EDA .............................................................................................. 105 Section 1—EDA .............................................................................................. 106 Section 5—EDA .............................................................................................. 107 Section 5—EDA .............................................................................................. 109 Section 1—EDA .............................................................................................. 110 Section 1—ITA ................................................................................................ 110 Section 5—EDA .............................................................................................. 112 Section 1—EDA .............................................................................................. 112 Section 5—EDA .............................................................................................. 114 Section 4—EDA .............................................................................................. 115 Section 3—EDA .............................................................................................. 119 Section 3—EDA .............................................................................................. 119 Section 3—EDA .............................................................................................. 125 Section 1—EDA .............................................................................................. 127 Section 1—EDA .............................................................................................. 131 Section 3—EDA .............................................................................................. 131 Section 56—ITA .............................................................................................. 132 Section 3—EDA .............................................................................................. 133



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Section 3—EDA ............................................................................................... 133 Section 3—EDA ............................................................................................... 134 Section 5—EDA ............................................................................................... 137 Section 5—EDA ............................................................................................... 138 Section 4—EDA ............................................................................................... 139 Section 4—EDA ............................................................................................... 140 Section 9H—ITA ............................................................................................. 157 Section 9H—ITA ............................................................................................. 158 8th Sch para 1 .................................................................................................. 158 Section 9H—ITA ............................................................................................. 159 Section 1—ITA ................................................................................................ 160 Section 9H—ITA ............................................................................................. 162 Section 66—ITA .............................................................................................. 163 Section 64EA—ITA ......................................................................................... 164 Section 9H—ITA ............................................................................................. 165 Section 9H—ITA ............................................................................................. 168 Section 9H—ITA ............................................................................................. 169 Section 9H—ITA ............................................................................................. 170 Section 9H—ITA ............................................................................................. 171 Section 1—ITA ................................................................................................ 171 Section 9H—ITA ............................................................................................. 187 Section 66—ITA .............................................................................................. 187 Section 9H—ITA ............................................................................................. 189 Section 9H—ITA ............................................................................................. 190 Section 9HA—ITA .......................................................................................... 193 8th Sch para 1 .................................................................................................. 194 8th Sch para 31 ................................................................................................ 195 Section 1—ITA ................................................................................................ 197 Section 1—ITA ................................................................................................ 199 Section 1—ITA ................................................................................................ 200 Section 26A—ITA ........................................................................................... 201 Section 22—ITA .............................................................................................. 202 Section 1—ITA ............................................................................................... 205 8th Sch para 2 .................................................................................................. 206 Section 9HA—ITA .......................................................................................... 209 8th Sch para 31 ................................................................................................ 210 Section 9HA—ITA .......................................................................................... 211 Section 9HA—ITA .......................................................................................... 212 8th Sch para 55 ................................................................................................ 217 8th Sch para 54 ................................................................................................ 218 Section 9HA—ITA .......................................................................................... 219 Section 19—ITA .............................................................................................. 223 8th Sch para 12A ............................................................................................. 229 Section 1—ITA ................................................................................................ 240 Section 11—ITA .............................................................................................. 241 Section 23—ITA .............................................................................................. 241 8th Sch para 38 ................................................................................................ 250 Section 26—ITA .............................................................................................. 251



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1st Sch para 3—ITA ......................................................................................... 251 8th Sch para 10 ................................................................................................ 255 Section 26A—ITA ........................................................................................... 256 8th Sch para 53 ................................................................................................ 261 Section 64F—ITA ............................................................................................ 266 Section 64FA—ITA ......................................................................................... 266 Section 12E—ITA............................................................................................ 269 Section 1—ITA ................................................................................................ 285 Section 26A—ITA ........................................................................................... 286 Section 1—ITA ................................................................................................ 286 8th Sch para 10 ................................................................................................ 287 8th Sch para 1 .................................................................................................. 287 8th Sch para 8 .................................................................................................. 288 Section 25B—ITA ........................................................................................... 292 Section 25B—ITA ........................................................................................... 294 8th Sch para 80 ................................................................................................ 299 8th Sch para 2 .................................................................................................. 300 Section 26A—ITA ........................................................................................... 300 8th Sch para 11 ................................................................................................ 301 8th Sch para 80 ................................................................................................ 302 Section 7—ITA ................................................................................................ 305 Section 7—ITA ................................................................................................ 307 Section 1—ITA ................................................................................................ 309 Section 7—ITA ................................................................................................ 311 Section 7—ITA ................................................................................................ 312 Section 7—ITA ................................................................................................ 314 Section 7—ITA ................................................................................................ 315 Section 7—ITA ................................................................................................ 317 Section 7—ITA ................................................................................................ 319 Section 7—ITA ................................................................................................ 319 Section 7—ITA ................................................................................................ 320 8th Sch para 68 ................................................................................................ 323 8th Sch para 69 ................................................................................................ 325 8th Sch para 70 ................................................................................................ 326 8th Sch para 71 ................................................................................................ 328 8th Sch para 72 ................................................................................................ 329 8th Sch para 73 ................................................................................................ 330 Section 91—ITA .............................................................................................. 337 Section 1—ITA ................................................................................................ 339 Section 7C—ITA ............................................................................................. 340 Section 1—ITA ................................................................................................ 342 Section 7C—ITA ............................................................................................. 343 Section 7C—ITA ............................................................................................. 344 Section 7C—ITA ............................................................................................. 346 s 1—ITA .......................................................................................................... 347 Section 60—ITA .............................................................................................. 351 Section 7C—ITA ............................................................................................. 354 Section 7C—ITA ............................................................................................. 356



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Section 7C—ITA ............................................................................................. 358 Section 7C—ITA ............................................................................................. 360 8th Sch para 44 ................................................................................................ 360 8th Sch para 44 ................................................................................................ 361 Section 7C—ITA ............................................................................................. 362 Section 64E—ITA ............................................................................................ 363 Section 7C—ITA ............................................................................................. 364 Section 8C—ITA ............................................................................................. 365 Section 1—ITA ................................................................................................ 379 Section 25B—ITA ........................................................................................... 383 8th Sch para 80 ................................................................................................ 385 Section 3—EDA ............................................................................................... 419 Section 4—EDA ............................................................................................... 420 Section 5—EDA ............................................................................................... 421 Section 5—EDA ............................................................................................... 423 Section 5—EDA ............................................................................................... 423 8th Sch para 31 ................................................................................................ 424 8th Sch para 31 ................................................................................................ 424 Section 66—ITA .............................................................................................. 467 Section 25—ITA .............................................................................................. 467 Section 1—ITA ................................................................................................ 468 Section 1—ITA ................................................................................................ 468 Section 25—ITA .............................................................................................. 471 Section 9HA—ITA .......................................................................................... 474 Section 25—ITA .............................................................................................. 474 8th Sch para 20 ................................................................................................ 476 Section 25—ITA .............................................................................................. 477 Section 25—ITA .............................................................................................. 479 Section 25—ITA .............................................................................................. 479 Section 25—ITA .............................................................................................. 480 Section 1—ITA ................................................................................................ 485 Section 5—EDA ............................................................................................... 491

Contents—from the Tax Shock, Horror newsletter


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Contents—sections, subsections


AA s 83(2) ......................................................................................................... 51 AA s 83(8)(a) .................................................................................................... 52 AA s 83(8)(b) .................................................................................................... 52 TAA s 240(1) ...................................................................................................... 53 TAA s 240(2) ...................................................................................................... 54 TAA s 240A(1) ................................................................................................... 54 TAA s 240A(2) ................................................................................................... 55 ITA s 54 .............................................................................................................. 57 ITA s 64(1) ......................................................................................................... 57 ITA s 64(2) ......................................................................................................... 58 ITA s 55(1) sv ‘donation’ ................................................................................... 58 ITA s 58(1) ......................................................................................................... 61 ITA s 56(1)(b) .................................................................................................... 64 ITA 8th Sch para 67(1)(a) ................................................................................... 64 ITA 8th Sch para 67(3) ....................................................................................... 64 EDA s 4(q).......................................................................................................... 65 ITA s 56(1)(g) .................................................................................................... 66 ITA s 56(1)(m).................................................................................................... 67 ITA s 56(2)(b) .................................................................................................... 72 ITA s 56(2)(c) ..................................................................................................... 74 ITA s 57 .............................................................................................................. 74 ITA 8th Sch para 11(1) ........................................................................................ 76 ITA s 55(1) sv ‘donation’ ................................................................................... 77 ITA s 58(1) ......................................................................................................... 77 ITA s 55(3) ......................................................................................................... 78 GLAA s 5 ........................................................................................................... 79 EDA s 3(1).......................................................................................................... 93 EDA s 3(2), extract ............................................................................................. 94 EDA s 3(2), extract ............................................................................................. 95 EDA s 3(2)(g) ..................................................................................................... 96 EDA s 1(1) sv ‘stocks or shares’ ........................................................................ 97 EDA s 1(1) sv ‘company’ ................................................................................... 98 EDA s 3(2)(g) ..................................................................................................... 98 EDA s 1(1).......................................................................................................... 99 MZA S 4 ........................................................................................................... 101 MZA S 5 ........................................................................................................... 101 MZA S 6 ........................................................................................................... 101 MZA S 7 ........................................................................................................... 101 MZA S 8 ........................................................................................................... 102



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ITA s 1(1) sv ‘resident’ .................................................................................... 102 EDA s 5(1), preamble ....................................................................................... 105 EDA s 5(1)(g) ................................................................................................... 105 EDA s 1(1) sv ‘fair market value’ .................................................................... 106 EDA s 5(1)(f)bis ............................................................................................... 107 EDA s 5(5) ........................................................................................................ 109 EDA s 1(1) sv ‘close corporation’ .................................................................... 110 ITA s 1(1) sv ‘dividend’ ................................................................................... 110 ITA s 1(1) ......................................................................................................... 110 EDA s 5(1A) ..................................................................................................... 112 EDA s 1(1) sv ‘fair market value’ .................................................................... 112 EDA s 5(1)(a) ................................................................................................... 114 EDA s 4(p) ........................................................................................................ 115 EDA s 3(3), preamble ....................................................................................... 115 EDA s 3(1) ........................................................................................................ 119 EDA s 3(2), extract ........................................................................................... 119 EDA s 3(2), extract ........................................................................................... 121 EDA s 3(2), extract ........................................................................................... 122 EDA s 3(2), extract ........................................................................................... 124 EDA s 3(3)(a) ................................................................................................... 125 EDA s 3(3)(a) ................................................................................................... 127 EDA s 1(1) sv ‘domestic policy’ ...................................................................... 127 LTIA s 1(1) sv ‘life policy’............................................................................... 127 LTIA s 1(1) sv ‘life event’ ................................................................................ 128 EDA s 3(3)(a)(i) ............................................................................................... 128 EDA s 3(3)(a)(iA) ............................................................................................ 129 EDA s 3(3)(a)(ii) .............................................................................................. 130 EDA s 1(1) sv ‘family company’ ...................................................................... 131 EDA s 3(3)(b) ................................................................................................... 131 ITA s 56(1)(c), (d) ............................................................................................ 132 EDA s 3(3)(cA) ................................................................................................ 133 EDA s 3(3)(d) ................................................................................................... 133 EDA s 3(5) ........................................................................................................ 134 EDA s 5(1), preamble ....................................................................................... 137 EDA s 5(1) ........................................................................................................ 137 EDA s 5(4) ........................................................................................................ 138 EDA s 4(i)......................................................................................................... 139 EDA s 4(q) ........................................................................................................ 140 ITA s 9H(3)(a) ................................................................................................. 157 ITA s 9H(1) ...................................................................................................... 158 ITA s 9H(1) sv ‘asset’ ...................................................................................... 158 ITA s 9H(1) sv ‘market value’ ......................................................................... 158 ITA 8th Sch para 1 sv ‘asset’ ............................................................................ 158 ITA s 9H(7) ...................................................................................................... 159 ITA s 1(1) sv ‘resident’, extract ....................................................................... 160 ITA s 1(1) sv ‘resident’, extract ....................................................................... 162 ITA s 1(1) sv ‘resident’, extract ....................................................................... 162 ITA s 9H(3)(c).................................................................................................. 162



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ITA s 66(13)(a)(c) ............................................................................................ 163 ITA s 64EA ...................................................................................................... 164 ITA s 9H(3)(e) ................................................................................................. 165 ITA s 9H(3)(f) .................................................................................................. 165 ITA s 9H(4)(a), (c) ........................................................................................... 168 ITA s 9H(2) ...................................................................................................... 169 ITA s 9H(1) ...................................................................................................... 170 ITA s 9H(1) sv ‘asset’ ...................................................................................... 170 ITA s 9H(1) sv ‘market value’ ......................................................................... 170 ITA s 9H(7) ...................................................................................................... 171 ITA s 1(1) sv ‘resident’, extract ....................................................................... 171 ITA s 1(1) sv ‘resident’, extract ....................................................................... 172 ITA s 1(1) sv ‘resident’, extract ....................................................................... 173 ITA s 1(1) sv ‘resident’, extract ....................................................................... 173 ITA s 1(1) sv ‘resident’, extract ....................................................................... 174 ITA s 1(1) sv ‘resident’, extract ....................................................................... 174 ITA s 1(1) sv ‘resident’, extract ....................................................................... 177 ITA s 1(1) sv ‘resident’, extract ....................................................................... 178 ITA s 1(1) sv ‘resident’, extract ....................................................................... 178 ITA s 1(1) sv ‘resident’, extract ....................................................................... 178 ITA s 9H(2)(b), (c) ........................................................................................... 187 ITA s 66(13)(a)(c) ............................................................................................ 187 ITA s 9H(4)(a), (c) ........................................................................................... 189 ITA s 9H(4)(d), (e), (f) ..................................................................................... 190 ITA s 9HA(1), extract ...................................................................................... 193 ITA 8th Sch para 1 sv ‘asset’ ............................................................................ 194 ITA 8th Sch para 31(1), extract ......................................................................... 195 ITA 8th Sch para 31(3) ..................................................................................... 195 ITA s 1(1) sv ‘dividend’ ................................................................................... 197 ITA s 1(1) sv ‘trading stock’ ............................................................................ 199 ITA s 1(1) sv ‘taxable income’ ........................................................................ 200 ITA s 26A ........................................................................................................ 201 ITA s 22(1) ....................................................................................................... 202 ITA s 22(2) ....................................................................................................... 202 TA s 22(8)(b)(ii) .............................................................................................. 203 ITA s 1(1) sv ‘gross income’, extract ............................................................... 205 ITA 8th Sch para 2(1) ....................................................................................... 206 ITA 8th Sch para 2(2) ....................................................................................... 206 ITA 8th Sch para 2(1)(b)(i) ............................................................................... 207 ITA s 9HA(1), extract ...................................................................................... 209 ITA 8th Sch para 31(1), extract ......................................................................... 210 ITA 8th Sch para 31(4) ..................................................................................... 210 ITA s 9HA(1) ................................................................................................... 211 ITA s 9HA(2) ................................................................................................... 212 AEA s 35(12) .................................................................................................... 214 ITA s 9HA(2) ................................................................................................... 216 ITA s 9HA(2) ................................................................................................... 216 ITA 8th Sch para 55 .......................................................................................... 217



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ITA 8th Sch para 54 .......................................................................................... 218 ITA s 9HA(3) ................................................................................................... 219 ITA s 19(1) ...................................................................................................... 223 ITA s 19(1) sv ‘allowance asset’ ..................................................................... 223 ITA s 19(1) sv ‘capital asset’ .......................................................................... 223 ITA s 19(1) sv ‘concession or compromise’ ................................................... 223 ITA s 19(1) sv ‘debt’ ....................................................................................... 223 ITA s 19(1) sv ‘debt benefit’ ........................................................................... 224 ITA s 19(1) sv ‘group of companies’ .............................................................. 224 ITA s 19(2) ...................................................................................................... 224 ITA s 19(8) ...................................................................................................... 224 ITA 8th Sch para 12A(1) ................................................................................... 229 ITA 8th Sch para 12A(1) sv ‘allowance asset’ .................................................. 229 ITA 8th Sch para 12A(1) sv ‘capital asset’ ....................................................... 229 ITA 8th Sch para 12A(1) sv ‘concession or compromise’ ................................ 229 ITA 8th Sch para 12A(1) sv ‘debt’ .................................................................... 229 ITA 8th Sch para 12A(1) sv ‘debt benefit’ ........................................................ 229 ITA 8th Sch para 12A(1) sv ‘group of companies’ ........................................... 230 ITA 8th Sch para 12A(2) ................................................................................... 230 ITA 8th Sch para 12A(6) ................................................................................... 230 ITA s 1(1) sv ‘gross income’, extract ............................................................... 240 ITA s 11(a) ....................................................................................................... 241 ITA s 23 ............................................................................................................ 241 ITA s 23(g) ....................................................................................................... 241 ITA 8th Sch para 38(1) ...................................................................................... 250 ITA s 26(1) ....................................................................................................... 251 ITA s 26(2) ....................................................................................................... 251 ITA 1st Sch para 3(1) ........................................................................................ 251 ITA 1st Sch para 3(2) ........................................................................................ 252 ITA 1st Sch para 3(3) ........................................................................................ 252 ITA 8th Sch para 10 .......................................................................................... 255 ITA s 26A ......................................................................................................... 256 ITA 8th Sch para 53 .......................................................................................... 261 CA s 21(1)(a), (d), (e) ...................................................................................... 262 ITA s 64F(1)(a) ................................................................................................ 266 ITA s 64FA(1)(b) ............................................................................................. 266 ITA s 12E(4) .................................................................................................... 269 TPCA s 1 sv ‘trust’ ........................................................................................... 277 TPCA s 1 sv ‘trust instrument’ ......................................................................... 279 ITA s 1(1) sv ‘taxable income’ ........................................................................ 285 ITA s 26A ......................................................................................................... 286 ITA s 1(1) sv ‘taxable capital gain’ .................................................................. 286 ITA 8th Sch para 10 .......................................................................................... 287 ITA 8th Sch para 1 sv ‘net capital gain’ ............................................................ 287 ITA 8th Sch para 8 ............................................................................................ 288 ITA s 25B(1) .................................................................................................... 292 ITA s 25B(2) .................................................................................................... 294 ITA s 1(1) sv ‘gross income’, preamble ........................................................... 294



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ITA 8th Sch para 80(1) ..................................................................................... 299 ITA 8th Sch para 2(1) ....................................................................................... 300 ITA s 26A ........................................................................................................ 300 ITA 8th Sch para 11(1)(d) ................................................................................. 301 ITA 8th Sch para 80(2) ..................................................................................... 302 ITA s 7(2) ......................................................................................................... 305 ITA s 7(2A) ...................................................................................................... 307 ITA s 7(2B) ...................................................................................................... 307 ITA s 7(2C) ...................................................................................................... 308 ITA s 1(1) sv ‘income’ ..................................................................................... 309 ITA s 7(3) ......................................................................................................... 311 ITA s 7(4) ......................................................................................................... 311 CA s 17 ............................................................................................................ 311 ITA s 7(5) ......................................................................................................... 312 ITA s 7(6) ......................................................................................................... 314 ITA s 7(7) ......................................................................................................... 315 ITA s 7(8)(a) .................................................................................................... 317 ITA s 7(8)(b) .................................................................................................... 317 ITA s 7(9) ......................................................................................................... 319 ITA s 7(10) ....................................................................................................... 319 ITA s 7(11) ....................................................................................................... 320 PFA s 37D(1)(d), (e) ........................................................................................ 320 ITA 8th Sch para 68(1) ..................................................................................... 323 ITA 8th Sch para 68(2) ..................................................................................... 323 ITA 8th Sch para 69 .......................................................................................... 325 ITA 8th Sch para 70 .......................................................................................... 326 ITA 8th Sch para 71 .......................................................................................... 328 ITA 8th Sch para 72 .......................................................................................... 329 ITA 8th Sch para 73(1) ..................................................................................... 330 ITA 8th Sch para 73(2) ..................................................................................... 331 ITA 8th Sch para 73(2) ..................................................................................... 331 ITA s 91(4) ....................................................................................................... 337 ITA s 91(4A) .................................................................................................... 337 ITA s 91(5) ....................................................................................................... 337 ITA s 1(1) sv ‘person’ ...................................................................................... 339 ITA s 7C(1) ...................................................................................................... 340 ITA s 57 ............................................................................................................ 341 ITA s 1(1) sv ‘connected person’, extract ........................................................ 342 ITA s 7C(1A) ................................................................................................... 343 ITA s 7C(2) ...................................................................................................... 344 ITA s 7C(3) ...................................................................................................... 346 ITA s 1(1) sv ‘official rate’ .............................................................................. 347 ITA s 60(1) ....................................................................................................... 351 ITA s 60(2) ....................................................................................................... 351 ITA s 60(3) ....................................................................................................... 351 ITA s 60(4) ....................................................................................................... 352 ITA s 60(5) ....................................................................................................... 352 ITA s 7C(5) ...................................................................................................... 356



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ITA s 7C(5)(b).................................................................................................. 358 ITA s 7C(5)(d).................................................................................................. 360 ITA 8th Sch para 44 sv ‘primary residence’, para (b) ....................................... 360 ITA 8th Sch para 44 sv ‘interest’ ...................................................................... 361 ITA s 7C(5)(g).................................................................................................. 362 ITA s 64E(4)(a) ................................................................................................ 363 ITA s 64E(4)(b) ................................................................................................ 363 ITA s 64E(4)(c) ................................................................................................ 363 ITA s 64E(4)(d) ................................................................................................ 364 ITA s 64E(4)(e) ................................................................................................ 364 ITA s 7C(5)(g).................................................................................................. 364 ITA s 8C(7) sv ‘equity instrument’ .................................................................. 365 ITA s 8C(7)....................................................................................................... 365 ITA s 8C(7) sv ‘equity instrument’ .................................................................. 365 ITA s 1(1) sv ‘trust’ .......................................................................................... 379 VATA s 1(1) sv ‘trust fund’............................................................................... 380 TDA S 1(1) sv ‘trust’ ........................................................................................ 380 ITA s 25B(2A) ................................................................................................. 383 ITA 8th Sch para 80(3) ...................................................................................... 385 AEA s 1 sv ‘trustee’ .......................................................................................... 391 AEA s 40(1) ..................................................................................................... 392 TPCA s 1 sv ‘trustee’ ........................................................................................ 392 EDA s 3(2)(a), (b) ............................................................................................ 419 EDA s 4(g), (j), (m) .......................................................................................... 420 EDA s 5(1)(b), (c), (d), (d)bis, (f) ..................................................................... 421 EDA s 5(2) ........................................................................................................ 423 EDA s 5(3) ........................................................................................................ 423 ITA 8th Sch para 31(1)(d), (e) ........................................................................... 424 ITA 8th Sch para 31(2) ...................................................................................... 424 AEA s 13(1) ...................................................................................................... 439 AEA s 26(1) ...................................................................................................... 440 AEA s 35(12) .................................................................................................... 440 ITA s 66(13)(a)(c) ............................................................................................ 467 ITA s 25(1) ....................................................................................................... 467 ITA s 1(1) sv ‘income’ ..................................................................................... 468 ITA s 1(1) sv ‘gross income’, extract ............................................................... 468 ITA s 25(5) ....................................................................................................... 471 ITA s 25(2) ....................................................................................................... 471 AEA s 13(2) ...................................................................................................... 472 ITA s 9HA(2)(b) .............................................................................................. 474 ITA s 25(3) ....................................................................................................... 474 ITA s 25(3), extract .......................................................................................... 475 ITA 8th Sch para 20(1)(a) ................................................................................. 476 ITA s 25(4)(a) .................................................................................................. 477 ITA s 25(4)(b) .................................................................................................. 477 ITA s 25(5) ....................................................................................................... 479 ITA s 25(6) ....................................................................................................... 479 ITA s 25(7) ....................................................................................................... 480



—49 —

ITA s 1(1) sv ‘person’ ...................................................................................... 485 EDA s 5(1)........................................................................................................ 491 AEA s 26(1A) ................................................................................................... 493 AEA s 30 .......................................................................................................... 493 AEA s 34(11) .................................................................................................... 493 AEA s 35(12) .................................................................................................... 494 AEA s 38(1) ..................................................................................................... 494 AEA s 42(2) ..................................................................................................... 495 AEA s 47 .......................................................................................................... 495


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Chapter 1: Introduction


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CHAPTER 1

Introduction

Wills and the planner

The most neglected financial document of all Planners will spend a fortune on trusts, 99% of which are guaranteed to be unfit for purpose or even pure rubbish, but baulk at the suggestion that people of even modest means ought to review their wills at least once every two years, so as to allow for changing circumstances in a rapidly changing world, and relentlessly constant, mind-sapping changes to the legal environment. A sound, fair and well-considered will can make a difference to a family’s welfare greater than many other initiatives open to the average planner.

How the state wants you to be advised on planning By law, the drawing of a will for a fee is reserved to attorneys, a scheme of arrangement harking back to the days of the craft guilds, with this difference, which collectors of antiques will know only too well: in those days a craft guild rigorously controlled standards. Today, only lip service is hypocritically paid to quality control in the modern professional equivalent of the ancient guilds, which represent nothing more than a facet of the overall tendency of commercial interests to win governmentally awarded protections designed to make it easier to fend off competition. All over the world, this unholy alliance benefits both sides immensely yet universally impoverishes consumers and thus economies. It has been said that a law that (truly) benefits consumers is a good law. The corollary is that a law designed to benefit producers is a bad law.

External material 1—from the Attorneys Act

Reservation of wills work

AA s 83(2)

(2) No person shall orally or by means of any written or printed matter or in any other manner, directly or indirectly, either for himself or herself or for any other person, canvass, advertise or tout for, or make known his or her preparedness or that of such other person to undertake any work, whether for or without remuneration, in connection with the drawing up of a will or other testamentary writing, the administration or liquidation or distribution of the estate of any deceased or insolvent person, mentally ill person, or any person under any other legal disability, or the



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judicial management or the liquidation of a company. [Act 60 of 1982]

A criminal offence to charge a fee

AA s 83(8)(a)

(8)(a) Any person, except a practising practitioner, who for or in expectation of any fee, gain or reward, direct or indirect, to himself or herself or to any other person, draws up or prepares or causes to be drawn up or prepared any of the following documents, namely—

(i) any agreement, deed or writing relating to immovable property or to any right in or to immovable property, other than contracts of lease for periods not exceeding five years, conditions of sale or brokers’ notes;

(ii) any will or other testamentary writing; (iii) any memorandum or articles of association or prospectus of any company; (iv) any agreement, deed or writing relating to the creation or dissolution of any

partnership or any variation of the terms thereof; (v) any instrument or document relating to or required or intended for use in any

action, suit or other proceeding in a court of civil jurisdiction within the Republic,

shall be guilty of an offence and on conviction liable in respect of each offence to a fine not exceeding R2 000 and in default of payment thereof to imprisonment not exceeding six months.

[Act 87 of 1989] [Act 53 of 1979]

Meaning of ‘fee, gain or reward, direct or indirect’

AA s 83(8)(b)

(b) The expression ‘fee, gain or reward, direct or indirect’ referred to in [s 83(8)(a)] shall not apply to—

(i) the salary or emoluments of an employee if no fee, gain or reward is sought or obtained by his or her employer from the person on whose behalf the document was drawn or prepared; or

(ii) any commission or other remuneration to which any person is or may be entitled either by law or otherwise for services rendered in his or her capacity as executor, administrator, trustee, curator, tutor or guardian by virtue of his or her appointment as such by any court of law or under the provisions of any will or other testamentary writing, or as agent for any person holding such appointment.

[Act 53 of 1979]

An easily overlooked yet entirely logical implication of s 83(8)(a)(ii) of the Attorneys Act, in its reference to any will or other testamentary writing, is that it would include a testamentary trust, which, thanks to the prohibition against incorporation by reference in a will (see Chapter 8), would in event comprise an integral part of a will. A testamentary writing not comprising a will might be a reference to a donatio mortis causa, which must be effected with the same formalities attendant upon the making of a will (see Chapter 2).



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Fortunately, to return to professional advisers, there are exceptions to every rule—even to the one that, in a codicil to Gresham’s Law, states that bad advice drives out good—and, in any event, planners ought to have sufficient general knowledge to know when they are being sold a bill of goods, and seek assistance elsewhere.

Although the financial services industry, in the field of investment and credit, is now mired in sufficient regulation and supposed control to have significantly retarded the economy, with very little, if anything, to show for it, there is at yet nothing of a statutory nature preventing attorneys, accountants and other professional advisers from giving general business and family advice, especially about the disposition of a planner’s property, by both quotidian and testamentary means, on the basis of knowledge of the law in general—especially contract and property law—and, most importantly, experience, derived from repeated exposure to similar circumstances.

Alas, when it comes to advice on the tax Acts, currently numbering sixteen in total, an even sillier closed shop is established, under the hugely flawed and, in places, undoubtedly unconstitutional Tax Administration Act, which has blatantly been encouraged by unimportant commercial interests, ironically enough, principally from quarters the least able to offer qualified advice in this sphere. The history of this initiative is scandalous; its outcome is pathetic; and its irony is that SARS officials are, subject to a very few noble and outstanding exceptions, wholly unqualified to do their work, across the board.

External material 2—from the Tax Administration Act

Registered tax practitioner

TAA s 240(1)

Registration of tax practitioners 240. (1) Every natural person who— (a) provides advice to another person with respect to the application of a tax Act;

or [ Checked against the original text of Act 28 of 2011]

(b) completes or assists in completing a return by another person, [ Checked against the original text of Act 21 of 2012] [ Checked against the original text of Act 28 of 2011]

must— (i) register with or fall under the jurisdiction of a ‘recognized controlling body’

by the later of 1 July 2013 or 21 business days after the date on which that person for the first time provides the advice or completes or assists in completing the return; and

(ii) register with SARS as a tax practitioner in the prescribed form and manner, within 21 business days after the date on which that person for the first time provides the advice or completes or assists in completing the return.

[ Checked against the original text of Act 21 of 2012]



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Exclusions

TAA s 240(2)

(2) The provisions of this section [s 240] do not apply in respect of a person who only—

(a) provides the advice or completes or assists in completing a return for no consideration to that person or his or her employer or a connected person in relation to that employer or that person;

(b) provides the advice in anticipation of or in the course of any litigation to which the Commissioner is a party or where the Commissioner is a complainant;

(c) provides the advice as an incidental or subordinate part of providing goods or other services to another person; or

(d) provides the advice or completes or assists in completing a return— (i) to or in respect of the employer by whom that person is employed on a

full-time basis or to or in respect of the employer and connected persons in relation to the employer; or

(ii) under the supervision of a registered tax practitioner who has assigned or approved the assignment of those functions to the person.

[ Checked against the original text of Act 39 of 2013] [ Checked against the original text of Act 21 of 2012] [ Checked against the original text of Act 28 of 2011]

It is a close call to say whether attorneys or accountants are worse at giving tax advice, but the accountants’ so-called CPD programmes should not be allowed to influence the choice, since these tick-box exercises have resulted in nothing other than a significant lowering of standards. In all things, the desired variable will always be maximized, and the desired variable under CPD programmes is validated time spent, nothing of any particular value to prospective clients.

The skill of lawyers in maintaining their guild privileges is demonstrated by the difference between two key words in s 240A(1) and (2)—must and may.

External material 3—from the Tax Administration Act

Definition—‘recognized controlling body’ (s 239)

TAA s 240A(1)

Recognition of controlling bodies [ Checked against the original text of Act 21 of 2012]

240A. (1) The Commissioner must recognize as a ‘recognized controlling body’— (a) the Independent Regulatory Board for Auditors established in terms of

section 3 of the Auditing Professions Act, 2005 (Act no 26 of 2005); (b) a Law Society established in terms of Chapter 3 of the Attorneys Act. 1979

(Act no 53 of 1979);



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(c) the General Council of the Bar of South Africa, a Bar Council and a Society of Advocates referred to in section 7 of the Admission of Advocates Act, 1964 (Act no 74 of 1964); and

(d) a statutory body that the Minister is satisfied is similar to the statutory bodies in this subsection [s 240A(1)] and the details of which are published in the Gazette.


Requirements for recognition

TAA s 240A(2)

(2) The Commissioner may recognize a ‘controlling body’, for natural persons who provide advice with respect to the application of a tax Act or complete returns, as a ‘recognized controlling body’ if the body—

[Illegal amendment to Bill; see Annexure 2; not included here.] [ Checked against the original text of Act 21 of 2012]

(a) in respect of such persons, maintains relevant and effective— [ Checked against the original text of Act 39 of 2013] [ Checked against the original text of Act 21 of 2012]

(i) minimum qualification and experience requirements; (ii) continuing professional education requirements; (iii) codes of ethics and conduct; and (iv) disciplinary codes and procedures; (b) is approved in terms of section 30B of the Income Tax Act for purposes of

section 10(1)(d)(iv) of the Act [Income Tax Act]; and (c) has at least 1 000 members when applying for recognition or reasonable

prospects of having 1 000 members within a year of applying. [ Checked against the original text of Act 21 of 2012]

Planners are confidently advised that, in the tax sphere, the best course, as recommended by the title of 167 TSH 2017, is: ‘If you need tax advice, pray.’ Yet, in may ways, the business community has ended up with the professional milieu it both craves and deserves.

The relentless move to incorporation For several decades our tax system has irrationally encouraged incorporation of commercial activities. The advent of the capital gains tax system and the introduction, in 2016, of s 9HA of the Income Tax Act, comprising a more comprehensive exit tax on death, have added further encouragement to the trend, even though in some instances incorporation can be disastrous. In any event, and surely unusually, this work pays especial attention to the tax treatment of what are very broadly identified as corporate interests.

Purpose of this work This work is aimed at those professionals who still believe that a client’s interests come before their own, although never at the cost of their ethical standards; who will not decline assistance in finding where the relevant law resides, and understanding a little better what it means;



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who want to be able to advise a client how the tax law applies to the client’s particular circumstances and plans; and who, with integrity, application and luck, hope to be able now and again to offer the client some useful advice.

The idea is that the regular review of a planner’s will provides an ideal opportunity to gain an oversight of how things are currently being done and accommodate aspirations for doing them differently, while having the fiscal consequences to hand, in full detail.

Chapter 2: Donations


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CHAPTER 2

Donations

An alternative to estate duty

Donations tax discourages estate duty avoidance Donations tax is imposed by s 54 of the Income Tax Act.

Section 54—ITA

Income Tax Act 1—donations tax charging provision (s 54)

Levy of donations tax

ITA s 54

Levy of donations tax 54. Subject to the provisions of section 56, there shall be paid for the benefit of the

National Revenue Fund a tax (in this Act referred to as donations tax) on the value of any property disposed of (whether directly or indirectly and whether in trust or not) under any donation by any resident (in this Part [Part V of Chapter II; Donations tax] referred to as the donor).

[Act 59 of 2000]

Defined terms—see s 1(1) This Act, resident.

The rate of the tax is set by s 64.

Section 64—ITA

Income Tax Act 2—rate of donations tax (s 64)

Rate of donations tax

ITA s 64(1)

Rate of donations tax [Act 5 of 2001]

64. (1) The rate of the donations tax chargeable under section 54 in respect of the value of any property disposed of under a donation shall be—

(a) 20 per cent of such value; or (b) such percentage of such value as the Minister may announce in the national



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annual budget contemplated in section 27(1) of the Public Finance Management Act, with effect from a date mentioned in that Announcement [sic].


Period of application

ITA s 64(2)

(2) If the Minister makes an announcement contemplated in [s 64(1)(b), that rate comes into effect on the date determined by the Minister in that announcement and continues to apply for a period of 12 months from that date subject to Parliament passing legislation giving effect to that announcement within that period of 12 months.


Defined terms—see s 1(1) Minister, Public Finance Management Act.

At 20%, this rate is equal to the rate of estate duty set by para 1(1)(a) of the First Schedule to the Estate Duty Act. As this identity shows, the purpose of the donations tax is to discourage the avoidance of estate duty by a planner through the dissipation of his or her property through free (definition of ‘donation’ in s 55(1)) or undervalued (s 58) dispositions.

Section 55—ITA

Income Tax Act 3—‘donation’ (s 55(1))

Definition

ITA s 55(1) sv ‘donation’

Definitions for purposes of this Part 55. (1) In this Part [Part V of Chapter II; Donations tax], unless the context otherwise

indicates— [Act 58 of 1962]

‘[D]onation’ means any gratuitous disposal of property including any gratuitous waiver or renunciation of a right;

[Act 58 of 1962]

Defined terms—see s 1(1) None.



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From TSH 1—on donations and ‘donations’

Learning the law with your PC: donation v ‘donation’ Ovenstone In the famous case of Ovenstone v SIR 1980 (2) SA 721 (A), Trollip JA said:

In a donation the donor disposes of the property gratuitously out of liberality or generosity, the donee being thereby enriched and the donor correspondingly impoverished, so much so that, if the donee gives any consideration at all therefor, it is not a donation (see The Master v Thompson's Estate 1961 (2) SA 20 (FC) at 24F–26C, 48F–49C, where all the authorities are collected). It can therefore be regarded as a unilateral contract in the sense that the donor is the only party upon whom any obligation lies.

A donation is not truly a unilateral contract (which is in any event a contradiction in terms), since it is subject to acceptance (or, in an immediate, as opposed to an executory donation—123 TSH 2013—at least receipt) by the donee.

Welch’s Estate Much more recently, in Welch’s Estate v CSARS 2005 (4) SA 173 (SCA), Marais JA said:

The test to be applied at common law to determine whether the disposition of an asset amounts to a donation properly so called (as opposed to a remuneratory donation) is so well-settled that it hardly needs repetition. The test is of course that the disposition must have been motivated by ‘pure liberality’ or ‘disinterested benevolence’. As it was put in De Jager v Grunder, ‘Was die dryfveer iets anders as suiwer vrygewigheid en welwillendheid jeens die eiser, was dit geen skenking nie.’ Furthermore, there is a presumption against donations in our law.

What is a remuneratory donation? Watermeyer ACJ (as he then was) once said of such donations, in the case leading to The Master v Thompson’s Estate 1961 (2) SA 20 (FC), that

they are not inspired solely by a disinterested benevolence but are, as a rule. made in recognition of, or in recompense for benefits or services received, and therefore are akin to an exchange or discharge of a moral obligation. Whether or not a donation is remuneratory must, of course, depend principally on the motive inspiring the gift.

Yet, having made this distinction between common-law donations proper and remuneratory donations, in Welch’s Estate, Marais JA went on, at some length, to equate a common-law donation with a ‘donation’ for donations tax purposes (s 55 of the Income Tax Act):




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The gravamen of his carefully reasoned argument is contained in the following passage:

In my opinion the Legislature has not eliminated from the statutory definition the element which the common law regards as essential to a donation, namely, that the disposition be motivated by pure liberality or disinterested benevolence and not by self-interest or the expectation of a quid pro quo of some kind from whatever source it may come.

What about intent? I have never agreed with this view (66 TSH 2008), since I do not see the statutory definition as including the same quality of intent as its common-law predecessor. In any event, some reason has surely to be found why the legislature saw fit to define a word with such a widely accepted common-law meaning. The implication is surely that something other than a common-law donation was intended.

Verseput In Avis v Verseput 1943 AD 331, Tindall JA said

I have given reasons for holding that it was not a remuneratory donation. But from this conclusion it does not follow that the promise was a genuine donation. It is true that it was gratuitous but the mere fact that the promisor Avis did not stipulate for any quid pro quo does not make the promise a donation;…. In the present case the motive of Avis is the test; the promise having been made for business reasons closely connected with the dissolution, it was not a genuine donation.… A promise of such a nature does not seem to me to have been contemplated by the authorities in their discussion of the meaning of donatio.

Thompson's Estate Yet, in Thompson’s Estate, Clayden ACJ (as he then was) did not appear to support Tindall JA’s view:

…it seems to me that these authorities show that the existence of other motives for the making of a donation do not alter its character. They show that where something is received in return, where there is some consideration, the transaction is not a donation; that is the basis of the decision in Avis v Verseput. They show that the intention which is paid regard to is an intention to enrich.

The abstract question While all of these cases were doubtless correctly decided on their facts, on the abstract question whether a donations-tax donation may be equated with a common-law donation, my current view is that the question is irrelevant. A donation for donations tax purposes, I say, includes:

A common-law donation designed purely to impoverish the donor and enrich the donee.

A donation, no matter what might be its motives other than liberality, whether or not it qualifies as a common-law donation.



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A remuneratory donation.

I even have proof that I am at least two-thirds right, in the form of the s 56(1)(k) exemption of voluntary awards included in ‘gross income’ under paras (c), (d) or (i) of the definition of that term or gains included in a donee’s income under ss 8A, 8B or 8C.

These are clearly remuneratory donations, and there would be no need to exempt them if they were not first embraced by the definition of a ‘donation’ for donations tax purposes.

Thus donations tax deals with more than just common-law donations. [Source: 126 TSH 2013]

Section 58—ITA

Income Tax Act 4—cheap dispositions as donations (s 58(1))

Cheap dispositions

ITA s 58(1)

Property disposed of under certain transactions deemed to have been disposed of under a donation

[Act 58 of 1962]

58. (1) Where any property has been disposed of for a consideration which, in the opinion of the Commissioner, is not an adequate consideration that property shall for the purposes of this Part [Part V; Donations tax] be deemed to have been disposed of under a donation: Provided that in the determination of the value of such property a reduction shall be made of an amount equal to the value of the said consideration.

[Act 32 of 2004] [Act 58 of 1962]

Defined terms—see s 1(1) Commissioner.

Residence and donations tax Under the charging provision, s 54, only residents are liable to the donations tax, but there are three things a nonresident planning to make a donations-tax-free donation ought to keep in mind:

The consequences, in his or her country of fiscal residence, of such a transaction. Several countries have gift taxes. If the donor is an immigrant in that country, did he or she declare the property concerned upon entry, as required by local law?

For a nonresident, domestic immovable property and interests in such property, as well as branch assets located in the Republic, will be liable to the imposition of the capital gains tax (CGT) upon their disposal, and a donation is a disposal for CGT purposes (definition of ‘disposal’ in para 1 of the Eighth Schedule to the Income Tax



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Act, read with para 8). This exposure of a nonresident to the CGT is dealt with in Chapter 4.

The donor had better make sure that he or she is regarded as being nonresident for exchange control purposes, and that the donee complies with the relevant EXCON regulations (see Chapter 10).

Why not pay donations tax? No one likes to anticipate outlays but there are circumstances in which a resident might choose to make a donation and pay the donations tax, thus ultimately saving estate duty, on account of his or her diminished dutiable estate. Two types of donation will not serve such a purpose:

A donatio mortis causa (donation in contemplation of death). A donations that takes effect only upon death.

Not only are these donations exempt from donations tax (s 56(1)(c) and (d), respectively, of the Income Tax Act), they are liable to estate duty upon the donor’s death (s 3(3)(b) of the Estate Duty Act; see Chapter 3). On the nature of such donations, see later in this Chapter 2.

One benefit of paying donations tax is that the planner’s estate will be diminished by the tax bill, thus leading to an eventual estate duty saving. Estate duty is not one of the deductions allowed under s 4 of the Estate Duty Act in the determination of the net value of the estate (see Chapter 3).

Another is that such a donation can vastly simplify the eventual administration of the donor’s estate, particularly if it is complex. It might even have the effect of better serving the beneficiaries of the donation than they would be served during a complicated liquidation and distribution process by an executor.

It might represent a form of insurance policy against the future imposition of an even heavier tax burden, for example, in the form of a wealth tax.

The donor might be in a better position than an executor to raise the cash needed to settle the tax bill in an efficient manner. (Interest on any borrowings will be disallowable for income tax purposes, thanks to the so-called general deduction formula; see Chapter 7.)

A donation might offer an opportunity for staving off or at least ameliorating any eventual contestation over the donor’s will.

Given the donor’s health and life-expectancy, the discounted present-value cost of anticipating estate duty might not be significant. Great and especial care should be taken to establish proof of the donor’s legal competency at the time of the donation.

Rather than suffer the effective exit tax upon a change of residence to another country under s 9H (see Chapter 4), a planner might



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prefer, while still a resident, to make a donation of his or her estate, although only to the extent that there is no desire to export capital.

Such an anticipatory donation might be made directly to individuals or to a fully discretionary trust formed for their benefit, or several such trusts (on trusts, see Chapter 8). But a donation made out of authorized funds held abroad will be constrained by the EXCON regulations, currently, to a far greater extent than inheritances of such authorized funds (see Chapter 10).

From TSH 2—donations in kind

Donations tax: donations in kind If you must make a donation, to, say, a family member, and you must make it in kind, rather than in cash, consider the fiscal consequences of your selection of an asset to give away, apart, that is, from the donations tax itself:

If it is trading stock, s 22(8)(b)(i) of the Income Tax Act includes in your income and thus your gross income the market value of the trading stock. You will be liable for income tax on the difference between that value and the cost or carrying value of the stock.

Paragraph 11(c)(i) of the First Schedule to the act achieves the same outcome for donations by a farmer of livestock or produce.

Paragraph 11(1)(a) of the Eighth Schedule treats the donation of an asset as a disposal, while para 38 values the disposal at the market value of the asset concerned. The difference between that value and the base cost (if less) with a capital gain, susceptible to the imposition of the capital gains tax.

So by choosing the asset, you can choose which additional tax to pay, income tax or the CGT, and, by considering the market values of the assets at your charitable disposal, you can, in addition, choose the total amount of taxes payable.

Just don’t forget value-added tax, and transfer duty. [Source: 176 TSH 2017]

Interspousal donations A popular and cheaper alternative is to make an interspousal donation exempt under s 56(1)(b).



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Section 56—ITA

Income Tax Act 5—interspousal exemption (s 56(1)(b))

Interspousal exemption

ITA s 56(1)(b)

Exemptions 56. (1) Donations tax shall not be payable in respect of the value of any property

which is disposed of under a donation— [Act 58 of 1962]

(b) to or for the benefit of the spouse of the donor who is not separated from him under a judicial order or notarial deed of separation;

[Act 90 of 1964] [Act 58 of 1962]

Defined terms—see s 1(1) Spouse.

Capital gains tax considerations Such a donation amounts to a CGT-free disposal for CGT purposes under para 67 of the Eighth Schedule to the act, although upon a more restrictive basis.

8th Sch para 67

Eighth Schedule 1—inter-spousal transfer (para 67(1)(a), (3))

Transfer of assets between spouses

ITA 8th Sch para 67(1)(a)

Transfer of asset between spouses [Act 60 of 2001]

67. (1)(a) Subject to [para 67(3)], a person (hereinafter referred to as ‘the transferor’) must disregard any capital gain or capital loss determined in respect of the disposal of an asset to his or her spouse (hereinafter referred to as ‘the transferee’).

[Act 45 of 2003]

ITA 8th Sch para 67(3)

(3) [Paragraph 67(1)] shall not apply in respect of the disposal of an asset by a person to his or her spouse who is not a resident, unless the asset disposed of is an asset contemplated in paragraph 2(1)(b).

[Act 60 of 2001]

Defined terms—see s 1(1) Person, capital gain, capital loss, spouse, resident.



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The beneficiary spouse is required to be a resident, so as to seal the CGT system. A disposal to a nonresident spouse will attract the imposition of the CGT, save in relation to the immovable property and immovable property interests and branch assets identified by para 2(1)(b) of the Eighth Schedule, which comprise the assets of a nonresident caught by the CGT system (see Chapter 5).

Estate duty considerations The result of a donations-tax-free interspousal donation is that the estate of the donor spouse is reduced for estate duty purposes, while that of the beneficiary spouse is increased, although liability for estate duty need not necessarily be postponed, depending upon which spouse dies first, and an inter-spousal inheritance is in any event free of estate duty, under s 4(q) of the Estate Duty Act (see also Chapter 3).

Section 4—EDA

Estate Duty Act 1—interspousal inheritance (s 4(q))

Accrual to surviving spouse

EDA s 4(q)

Net value of an estate [ Checked against the original text of Act 92 of 1971] [ Checked against the original text of Act 45 of 1955]

4. The net value of any estate shall be determined by making the following deductions from the total value of all property included therein in accordance with section 3, that is to say—

[ Checked against the original text of Act 92 of 1971] [ Checked against the original text of Act 45 of 1955]

(q) so much of the value of any property included in the estate which has not been allowed as a deduction under the foregoing provisions of this section [s 4], as accrues to the surviving spouse of the deceased: Provided that—

(i) the deduction allowable under the provisions of this paragraph [s 4(q)] shall be reduced by so much of any amount as the surviving spouse is required in terms of the will of the deceased to dispose of to any other person or trust;

(ii) no deduction shall be allowed under the provisions of this paragraph [s 4(q)] in respect of any property which accrues to a trust established by the deceased for the benefit of the surviving spouse, if the trustee of such trust has a discretion to allocate such property or any income therefrom to any person other than the surviving spouse.


Defined terms—see s 1(1) Spouse.



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Use of a trust for such purposes The language of both s 56(1)(b) and para 67(1)(a) of the Eighth Schedule allows the interpolation of a trust in such a donation or transfer only if the beneficiary spouse is a vested beneficiary of the property donated or asset transferred. Thanks to the nudum praeceptum principle (you cannot deprive the lawful owner of his or her property), that is not an arrangement that is going to work (see Estate Freedman v Freedman and Others 1962 (3) SA 79 (W)0, unless the beneficiary spouse lacks legal capacity. But what will work is the appointment of the surviving spouse as the vested beneficiary of a usufructuary ‘or other like interest’, with a gift over, upon his or her death, to some other beneficiary, or with the bare dominium vesting in the trustees and, again, a suitable gift over or continuation of the trust. The catch is that, upon the death of the surviving spouse, there will be an interest ceasing, included in the actual property of his or her estate by s 3(2)(a) of the Estate Duty Act. See ‘Stingy Husbands’ 68 TSH 2008.

On estate duty, see Chapter 3; on trusts, see Chapter 8.

Exchange control considerations When the beneficiary spouse is a nonresident, the exchange control regulations will have to be taken into account (see Chapter 10).

Donation of foreign property Also free of donations tax, regardless of the relationship to the donor of the donee, is a donation of qualifying foreign property, under s 56(1)(g).

Section 56—ITA

Income Tax Act 6—donation of foreign property (s 56(1)(g))

Exempt donation of foreign property

ITA s 56(1)(g)



(g) if such property consists of any right in property situated outside the Republic and was acquired by the donor—

[Act 90 of 1964]

(i) before the donor became a resident of the Republic for the first time; or [Act 59 of 2000]

(ii) by inheritance from a person who at the date of his death was not ordinarily resident in the Republic or by a donation if at the date of the donation the donor was a person (other than a company) not ordinarily resident in the Republic; or

[Act 113 of 1977]



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(iii) out of funds derived by him from the disposal of any property referred to in [s 56(1)(g)(i) or (ii)] or, if the donor disposed of such last-mentioned property and replaced it successively with other properties (all situated outside the Republic and acquired by the donor out of funds derived by him from the disposal of any of the said properties), out of funds derived by him from the disposal of, or from revenue from any of those properties; or

[Act 90 of 1964]

(iv) …[Deleted.]; [Act 31 of 2005]

(v) …[Deleted.]; [Act 31 of 2005]

Defined terms—see s 1(1) Republic, resident, company.

A donor born in the Republic was born a resident, and so cannot serve as a donor under s 56(1)(g)(i). On the meaning of ordinarily resident, see Chapter 3.

Exchange control considerations Both donor and donee need to take the exchange control regulations into account (see Chapter 10).

Donation of use of farming property to a child A little-known exemption outside of the farming community, s 56(1)(m), allows a parent to grants user rights over farming property to a child, free of donations tax.

Section 56—ITA

Income Tax Act 7—donation of farm usage (s 56(1)(m))

Usage of farming property by child

ITA s 56(1)(m)



(m) if such property consists of a right (other than a fiduciary, usufructuary or other like interest) to the use or occupation of property used for farming purposes, for no consideration or for a consideration which is not an adequate consideration, and the donee is a child of the donor;

[Act 58 of 1962]

Defined terms—see s 1(1) Child.



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The exclusion from the s 56(1)(m) exemption of fiduciary, usufructuary or other like interests would extend to a habitatio or a usus, which are personal servitudes and therefore fall into the category other like interests. What is envisaged is a lease, whether or not registered, or a precarium.

From TSH 3—habitatio

Words & phrases: ‘habitatio’ A form of property is a habitatio. What follows is an extract from the judgment of Van Rooyen AJ in Kidson and Another v Jimspeed Enterprises CC and Others 2009 (5) SA 246 (GNP) (footnotes removed):

Habitatio has since time immemorial been recognized as one of the personal servitudes, in addition to usufruct and use. In Galant v Mahonga Sampson J summed up the position well:

I have already held that her right amounted to habitatio. At one time in Roman law it was doubtful whether habitatio was a distinct servitude; but Justinian (Inst 2.5.2–5) decided to allow it to be classed among personal servitudes, although it seemed to the jurists to stand as a right by itself. See also D 7.8.10, C 3.33. The Roman-Dutch authorities accepted this law. Grotius Introduction (2.44.8) treats habitatio under usus, and recognizes the right to let. Van der Linden, Institutes (1.11.6) includes it under personal servitudes, and there never has, I think, been a doubt that it is so regarded in our law to-day. A personal servitude differs from a real servitude because it is attached to a person and not to a dominant tenement; but the right comprises a part of dominium and is for that reason a jus in re which founds an action rei vindicatio. The plaintiff, therefore, can sue in this action for the recovery of her right against any owner of the land subject to the right.

…. Now habitatio is treated in the authorities as akin to use, and use was restricted to bare enjoyment, and to what is necessary to enable the free use to be enjoyed. Justinian (Inst 2.5.2.) extended to habitatio the right to receive a guest in the house (I presume temporarily) and allowed the owner of the servitude to reside in the house with his wife and children, and such persons as might be in his employ, and by a decision allowed the power to let the right of inhabiting to others. Voet ad Pand (7.8) does not throw any light on the extent of the right in regard to the question at issue in this case, and indeed the general trend of the Roman-Dutch writers is to leave the matter where Justinian placed it.’

Personal servitudes have been classified, since Roman times, with praedial servitudes, as limited real rights. In spite of the personal servitude’s connection to a particular person (it cannot be transferred or inherited) it is for all other purposes a real right and, as such, legally recognized property which is protected as an asset by private-law remedies. All real rights have a res as object. A res is of a tangible nature and does not amount to a mere airspace. Air or space can, accordingly, never qualify as an object of a ius in rem. Even in the sectional title legislation the ownership of one of the sections is described with reference to at least the middle of the walls, roof and floor between the sections.

The object of the right to habitatio (right of free residence) is the land which is subject to the limited real right of habitatio. That is why it is registered against the



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title deed of the land with cadastral precision as to which part of the land is subject to the habitatio…. The object of the limited ius in rem is accordingly not the air which is encircled by the ‘four’ walls of the farmstead, but the land on which it is located. That is why the rented room in Kain v Khan is not in itself the res, since it is part of the building and, superficies solo cedit. The entitlements of the holder of the right of habitatio may, however, in that case be defined with reference to the particular room as part of the building attached to the land as object of the real right.

When the person who has the right of habitatio abandons the right, it lapses. As a personal servitude it also lapses on the death of the holder of the habitatio. Before that the holder of the right may, of course, reach an agreement with the owner of the burdened property to abandon his limited real right and to accept as a quid pro quo some compensation for this waiving of his limited real right. This does not amount to a ‘transfer’ of the limited real right to the owner, but will have the consequence that the erstwhile burden encompassed in the limited real right falls away and the entitlements of the owner of the then unburdened ownership will automatically return to the original unburdened position, thanks to the elasticity of the real right of ownership.

[Source: 102 TSH 2011]

From TSH 4—habitatio

Words & phrases: ‘habitatio’ Per Majiedt JA in Hendricks v Hendricks and Others 2016 (1) SA 511 (SCA) (footnotes suppressed):

The right to habitation as a servitude is a limited real right which confers on the holder the right to dwell in the house of another, without detriment to the substance of the property. The right can historically be traced back to Roman law when the original objective was to provide accommodation to indigent foreigners. In that context it was regarded as a factual, rather than a juridical, institution. But Justinian accepted it as a sui generis [one of a kind] legal concept and he classified it as a personal servitude. This was generally accepted by Roman-Dutch authorities. Our courts have long recognized habitatio as a personal servitude which is a limited real right. Thus it has been held to be a jus in re [right in a thing] which founds an action rei vindicatio [action for the return of a thing]. The novel question before us is whether, as far as the PIE Act [Prevention of Illegal Eviction from and Unlawful Occupation of Land Act] is concerned, a holder of this limited real right is a ‘person in charge’ of the property in respect of which the habitatio operates, and whether that holder can obtain an eviction order against an owner who occupies the property without the holder’s consent. For the reasons that follow, both these questions must in my view be answered in the affirmative.

It is well established that ownership is the most comprehensive real right and that all other real rights are derived from it. But limited real rights are absolute in the sense that they are enforceable against any and all. A limited real right detracts from the owner’s dominium. Thus, in the present instance the owner of the property, the first respondent, cannot exercise full dominium over it inasmuch as she cannot occupy the property unless the appellant, as the holder of the right to habitation, has consented thereto. Absent such consent, her occupation of the property is unlawful.



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She is therefore, on the facts of this case, an ‘unlawful occupier’ within the meaning contemplated in s 1 of the PIE Act.

In a footnote, Majiedt JA said

…. See also Kidson and Another v Jimspeed Enterprises CC and Others 2009 (5) SA 246 (GNP) paras 7 and 8, where Van Rooyen AJ gives a useful exposition of the history and ambit of the right.

Kidson was covered in 102 TSH 2011. In Makate v Vodacom Ltd 2016 (4) SA 121 (CC), Wallis AJ made the

following remark:

It will be apparent from this that, depending on their source, rights of action directed at the same purpose and seeking identical relief may in one case give rise to a debt for the purposes of prescription, and in another not. For example, a right to claim occupation under a lease is a personal right and the obligation to satisfy that right by delivering possession of the property leased will be a debt capable of prescribing. But a claim to possession of the same property arising from a registered right of usus or habitatio will not.

In Durban City Council v Woodhaven Ltd and Others 1987 (3) SA 555 (A), Vivier JA said:

In an earlier case Van der Merwe v Van Wyk NO 1921 EDL 298 (a decision of the Full Bench of that Court) it was held that a usufruct is such a personal right that it cannot be ceded to anyone but the owner of the property over which the usufruct exists and that, consequently, it does not fall into the community of property between husband and wife. Finally, in this regard I should refer to s 66 of the Deeds Registries Act 47 of 1937 which gives full effect to our common law by providing that no personal servitude of usufruct, usus or habitatio. purporting to extend beyond the lifetime of the person in whose favour it is created, shall be registered. Nor may a transfer or cession of such personal servitude to any person other than the owner of the land encumbered thereby be registered.

Section 66 of the Deeds Registries Act reads like this:

66. No personal servitude of usufruct, usus or habitatio purporting to extend beyond the lifetime of the person in whose favour it is created shall be registered, nor may a transfer or cession of such personal servitude to any person other than the owner of the land encumbered thereby, be registered.

[Source: TSH—as yet unpublished]



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From TSH 5—precarium

Words & phrases: precarium In Malan v Nabygelegen Estates Watermeyer CJ defined a precarium as ‘the legal relationship which exists between parties when one party has the use and occupation of property belonging to the other on sufferance, by the leave and licence of the other’.

The leaned Chief Justice proceeded to say that ‘[i]ts essential characteristic is that the permission to use or occupy is revocable at the will of the person granting it’. In Adamson v Boshoff and others, Van Winsen AJP held that in the case of a precarium ‘it is a tacit condition, a conditio juris, of the grant thereof that it can be withdrawn by the grantor at will’. As to the notice that must be given, he held:

I have been unable to find authority amongst the old writers as to the period of notice required where the circumstances were such that it was open to the grantor to withdraw his concession whenever he chose. I think, however, that in the light of the South African case law it can be said that the grantor withdrawing the concession to the holder of the precarium must give him reasonable notice of his decision to do so. What length of notice is reasonable must be determined in relation to the nature of the concession and the circumstances of the case.

—Plasket J in Jordaan v Koekemoer and Another (CA52/2010) [2010] ZAECGHC 46 (10 June 2010). (Footnotes suppressed.)


From TSH 6—‘like interest’

Words & phrases (estate duty): ‘like interest’ Section 3(2)(a) of the Estate Duty Act includes as actual property in a deceased estates ‘any fiduciary, usufructuary or other like interest in property…held by the deceased immediately prior to his death’. Colloquially, it is known as an ‘interest ceasing’, and is included as dutiable property because its cessation improves the value of the underlying property, the full value of which accrues to the so-called remainderman upon the death of the holder of the limited interest.

There is authority for the view that a ‘usufructuary or other like interest’ is an interest ‘enjoyed over the expectation of life of the beneficiary or a lesser period’, and that it would be applicable to a habitatio—Van Winsen J, in Estate Bourke v SIR 1979 (4) SA 240 (C).

There is authority for the view that a ‘usufructuary or like interest’ can exist inside a trust—Schreiner JA, in CIR v Lazarus’ Estate and Another 1958 (1) SA 311 (A).

There is some slight authority for reading ‘other like interest’ as being ejusdem generis (of a kind) with a usufructuary interest, with the result that a ‘like interest’ must be a real right—Ludorf J, in Gutkin & Lazarus NNO And Another v CIR 1957 (3) SA 165 (T).



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But, in Hansen’s Estate v CIR 1956 (1) SA 398 (A), Hoexter JA refused to express an opinion whether an ‘other like interest’ refers to real rights only.

There is also authority for the view that a ‘like interest’ must be similar to a usufruct, and that examples of a like interest would be a usus and a habitatio—Centlivres CJ, in Estate Watkins-Pitchford and Others v CIR 1955 (2) SA 437 (A) (see also Murray J, in Hansen, NO v CIR 1955 (2) SA 470 (W)). In a dissenting judgment in Estate Watkins-Pitchford, Schreiner JA said:

…. I do not think that the words ‘or other like’ interests can be restricted to quaint survivals like usus and habitatio. Certainly a right to receive whatever income might flow from a fund administered by trustees would fall within the description of a usufructuary or other like interest, in the absence, of course, of other indications that the interest was something different as, for instance, that it was fiduciary.

A usufruct, usus and a habitatio are all personal servitudes, being real rights (174 TSH 2017), and are registrable under s 65 of the Deeds Registries Act. A right of usus is a right of use. A right of habitatio is a right of free residence (102 TSH 2011).

The point is that when an income-flow from a trust, a usufruct, a usus, a habitatio ceases upon the death of the person enjoying the interest, there will be property in the estate.


The annual exemption Perhaps the most popular and well-known tax provision in history is the so-called annual exemption of R100 000 under s 56(2)(b).

Section 56—ITA

Income Tax Act 8—annual exemption (s 56(2)(b))

The annual exemption

ITA s 56(2)(b)

(2) Donations tax shall not be payable in respect of— [Act 58 of 1962]

(b) so much of the sum of the values of all property disposed of under donations by a donor who is a natural person as does not during any year of assessment exceed R100 000;

[Act 8 of 2007]

Defined terms—see s 1(1) Year of assessment.

A commonly voiced warning against the consistent, annual use of this exemption, to the maximum, is that it does not allow for other donations



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that might be made during the same year, thus rendering the unwitting donor liable to the imposition of donations on the excess donated over R100 000.

A popular wheeze is to write off R100 000 a year from a loan due to the donor by a family trust. What is actually required is a cession by the donor of part of his or her claim against the trust, for no consideration. Such a cession does not amount to an executory donation (in which settlement is deferred) but is a common-law donation (see later in this Chapter 2), yet is best recorded in writing, including evidence of acceptance by the trustees, as proof of the cession.

A variation once mooted was to make an executory donation each year, accepted by the trustees, with payment deferred, perhaps until the death of the donor. If no time is set for payment, the donation would surely be invalid, and, if it is payable on demand, set-off would surely occur automatically. At the very least, it seems to be an unnecessarily complicated means of achieving a simple end.

Also to be taken into account in such circumstances are the reduction-of-debt provisions, s 19 and para 12A of the Eighth Schedule to the Income Tax Act, on which, see Chapter 6. As it happens, s 19(8)(b) and para 12A(6)(b) exclude donations as defined in s 55(1) and cheap transaction caught by s 58 from the application of the reduction-of debt provisions.

The obsession with this fiddly exemption demonstrates either the small-mindedness of much of the professional community or the use of trusts by those who cannot afford them. Is it not far simpler for the trust’s creditor—that is to say, the planner—to achieve repayment of (usually) his loan account by requesting the trustees to pick up the tab for his living expenses? In principle, this option ought to make no difference, but, in practice, it does result in a very visible and consistent reduction of the planner’s loan to the trust.

The maintenance exemption Section 56(2)(c) ensures the freedom from donations tax of bona fide contributions towards the maintenance of any person. There need not be a contractual, common-law or statutory obligation involved, and what would be reasonable would depend upon the particular circumstances of both the donor and the donee, although especially of the donee. It is a question of both resources and lifestyle.



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Section 56—ITA

Income Tax Act 9—maintenance exemption (s 56(2)(c))

Exempt maintenance

ITA s 56(2)(c)

(2) Donations tax shall not be payable in respect of— [Act 58 of 1962]

(c) so much of any bona fide contribution made by the donor towards the maintenance of any person as the Commissioner considers to be reasonable.

[Act 58 of 1962]

Defined terms—see s 1(1) Person, Commissioner.

Corporate donations

Donation at instance Section 57 deems a donation made by a company at the instance of another person to be a donation made by that other person. The only time it cannot work is when the company supposedly makes such a donation to the instancer, such as a sole shareholder, since you cannot make a donation, even a deemed one, to yourself. The transaction would have to be characterized as something else, such as remuneration, a dividend, a consideration for goods or services, or just plain theft, a popular class of interaction between a shareholder and (usually) his company.

Section 57—ITA

Income Tax Act 10—corporate donation at instance (s 57)

Corporate donation at instance

ITA s 57

Disposals by companies under donations at the instance of any person 57. If— (a) any property is disposed of by any company at the instance of any person; and (b) that disposal would have been treated as a donation had that disposal been

made by that person, that property must for the purposes of this Part [Part V of Chapter II; Donations tax]

be deemed to be disposed of under a donation by that person. [Act 24 of 2011]

Defined terms—see s 1(1)



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Company, person.

Commercial companies have no business making donations In general, an ordinary commercial company surely has no cause or even authority to make donations, even nobly exempt ones, such as donations to political parties (s 56(1)(h)). Section 57 is probably applicable to a much wider extent than realized, although hardly ever even acknowledged to exist by SARS (and then applied in bizarre ways).

An interesting question is whether its application precludes the characterization for tax purposes of the actual outgoing (for example, was it a dividend?). The (apparent) ordinary rule of deeming provisions—that the deemed event extinguishes the actual event—does not necessarily apply under s 57, which does not expunge an outlay but merely deems it to constitute a donation by the instancer.

Donations very closely related to the income-earning operations (such as donations to surrounding schools and religious institutions) and those encouraged (or coerced) in the name of corporate social responsibility are very probably not donations at all (certainly not under the common law), and are in any event deductible under the so-called general deduction formula (see Chapter 7).

The deductibility of a donation under s 18A of the Income Tax Act does not remove it from the consequences or scrutiny described here. In truth, very much of the s 18A programme reeks of fraud, thanks to a lackadaisical and untrained SARS, and dishonesty in supposedly high and even sacred places, where the naïve least expect to find it.

Which donations are reportable?

From TSH 7—which donations are reportable?

Donations tax: which donations are reportable? Section 60(4) of the Income Tax Act reads like this:

(4) The payment of the tax in terms of [s 60(1)] shall be accompanied by a return.

In other words, you submit a donations tax return only when there is donations tax to be paid. You are not required to report exempt donations, which are, in the first instance, listed in s 56(1), and then expanded upon in s 56(2), by the R10 000, the R100 000, and the bona fide maintenance exemptions.

What does SARS say on its website?

After making a donation you should fill in form IT 144 (Declaration by donor/donee) and send it to SARS with your payment.

In other words, send in the form only when a payment is due. What does form IT 144 say? It is ambiguous but is best read as asking you to



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submit all (‘all’?) donations previously made only when you are declaring a donation subject to the tax. Read with the website, that is what it certainly means.


Donations and the attribution rules A donation of whatever kind will constitute an act of liberality (donation, settlement or other disposition) sufficient to engage what are today called the attribution rules, to be found in s 7 of the Income Tax Act and Part X of the Eighth Schedule to the act (paras 68 to 73). These are dealt with in Chapter 8, albeit almost upon a pro forma basis—ignorance and abuse of these provisions is rife, to the point, perhaps, of being almost universal.

Donations and the capital gains tax Since a donation, by definition, involves a patrimonial (property) event, it triggers a chargeable (fiscal) event under the Eighth Schedule, constituting a disposal under para 11(1), with the result that the same transaction will more often than not attract the imposition of both the donations tax and the CGT, an outcome that is not at all surprising, since, upon a taxpayer’s death, a liability for the CGT (see Chapter 5) and estate duty (see Chapter 3) will arise.

8th Sch para 11

Eighth Schedule 2—what is a disposal (para 11(1))

Disposals

ITA 8th Sch para 11(1)

Disposals 11. (1) Subject to [para 11(2)], a disposal is any event, act, forbearance or operation

of law which results in the creation, variation, transfer or extinction of an asset, and includes—

[Act 5 of 2001]

(a) the sale, donation, expropriation, conversion, grant, cession, exchange or any other alienation or transfer of ownership of an asset;

(b) the forfeiture, termination, redemption, cancellation, surrender, discharge, relinquishment, release, waiver, renunciation, expiry or abandonment of an asset;

(c) the scrapping, loss, or destruction of an asset; (d) the vesting of an interest in an asset of a trust in a beneficiary;

[Act 5 of 2001]

(e) the distribution of an asset by a company to a holder of shares; [Act 31 of 2013]

(f) the granting, renewal, extension or exercise of an option; or (g) the decrease in value of a person’s interest in a company, trust or partnership



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as a result of a value shifting arrangement. [Act 5 of 2001]

Defined terms—see s 1(1) Trust, beneficiary, share, company.

Kinds of and formalities for donations Quite apart from donations tax, in order to be effective in law, donations must satisfy various criteria. Briefly stated, a common-law donation must be made out of pure liberality, subject to no consideration whatsoever, with the donor intending to impoverish himself or herself to the extent of the donation, while enriching the donee to an equivalent extent. As shown earlier in this Chapter 2, the definition of a ‘donation’ in s 55(1) does not meet these criteria, while the donations tax encompasses, by way of s 58(1), transactions in which a consideration, albeit inadequate, is called for. Nevertheless, the timing of a donation for donations tax purposes coincides with that of a common-law or statutory donation, thanks to s 55(3).

Section 55—ITA

Income Tax Act 11—‘donation’ (s 55(1))

Definition

ITA s 55(1) sv ‘donation’

Definitions for purposes of this Part 55. (1) In this Part [Part V of Chapter II; Donations tax], unless the context otherwise

indicates— [Act 58 of 1962]


[Act 58 of 1962]


Section 58—ITA

Income Tax Act 12—cheap dispositions as donations (s 58(1))

Cheap dispositions

ITA s 58(1)

Property disposed of under certain transactions deemed to have been disposed of under a donation



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[Act 58 of 1962]

58. (1) Where any property has been disposed of for a consideration which, in the opinion of the Commissioner, is not an adequate consideration that property shall for the purposes of this Part [Part V; Donations tax] be deemed to have been disposed of under a donation: Provided that in the determination of the value of such property a reduction shall be made of an amount equal to the value of the said consideration.

[Act 32 of 2004] [Act 58 of 1962]

Defined terms—see s 1(1) Commissioner.

Section 55—ITA

Income Tax Act 13—timing of donation (s 55(3))

Deemed date of effect the same as date in common law

ITA s 55(3)

(3) For the purposes of this Part [Part V of Chapter II; Donations tax] a donation shall be deemed to take effect upon the date upon which all the legal formalities for a valid donation have been complied with.


Being contractual in nature, a donation requires acceptance by the donee. In an ordinary, or so-called common-law donation, the donee’s rights under the contract immediately mature, as the donor hands over the subject-matter of the donation, for example, a sum of cash, or cedes rights to the donee. In language useful in tax law, dies cedit (a right is created) and dies venit (the time for enjoyment arrives) occur simultaneously.

The other type of donation is called an executory donation, under which offer and acceptance are still required but delivery to the donee of the donated property is delayed. At the moment of acceptance, dies cedit, the donee acquires a personal right to acquire the ownership of the subject-matter of the donation, or a jus in personam ad rem acquirendam. Upon delivery, dies venit, this personal right matures into a real right, in the form of possession of the property itself (as opposed to the right to claim delivery of it), passing to the donee.

Section 5 of the General Laws Amendment Act 50 of 1956 requires an executory donation to be reduced to writing, this being the reason why it is regarded as a statutory, as opposed to a common-law, donation.



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External material 4—from General Laws Amendment Act, 1956

Executory donations

GLAA s 5

Formalities in respect of donations 5. No donation concluded after the commencement of this Act shall be invalid

merely by reason of the fact that it is not registered or notarially executed: Provided that no executory contract of donation entered into after the commencement of this Act shall be valid unless the terms thereof are embodied in a written document signed by the donor or by a person acting on his written authority granted by him in the presence of two witnesses.

[Act 70 of 1968]

An executory donation not satisfying the requirements of this provision will—as the provision itself states—be invalid, and thus of no force or effect, including for fiscal purposes. Invalid actions cannot subsequently be made good, and the desired transaction must be attempted afresh.

What is strange about the s 55(3) timing provision is that, by relying upon the timing rule governing a valid donation, it is clearly conjuring with a common-law donation, under a tax aimed at artificial (s 55(1) sv ‘donation’) and deemed (s 58) donations.

A donatio mortis causa (a donation made in contemplation of death) must be effected with the same formalities attendant upon the making of a will, and is revocable by the donor at any time before death. A donation delaying any benefit until the death of the donor requires acceptance by the donee in order to constitute a ‘donation’ in the first place, and so is not revocable. In other words, it is an executory donation.

From TSH 8—donatio mortis causa

Words & phrases: donatio mortis causa After years of relying entirely on high school Latin (a gift in contemplation of death) followed by a spot of Wille & Millin, I have finally got around to a serious investigation of what this expression means under our law. In a flash, straight after starting a search of SALR (Jutas) for the string “mortis causa”, I was at the leading case, Jordaan and Others NNO V De Villiers 1991 (4) SA 396 (C), where Berman J said:

I turn lastly to Mr Murray’s third submission, viz that, even if the donation was one mortis causa, it required no formality as it fell within the ambit of s 5 of the General Law Amendment Act 50 of 1956…the provisions of which read as follows:

5. Formalities in respect of donations.—No donation concluded after the commencement of this Act shall be invalid merely by reason of the fact that it is not



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registered or notarially executed: Provided that no executory contract of donation entered into after the commencement of this Act shall be valid unless the terms thereof are embodied in a written document signed by the donor or by a person acting on his written authority granted by him in the presence of two witnesses.

It is unquestionable that prior to the passing of the Act a donation mortis causa, in order that it be valid and enforceable, had to comply with the formalities required for a will (see Meyer and Others v Rudolph’s Executors 1918 AD 70). It was Mr Murray’s contention that with the passing of the Act there was no longer any need for any special formalities to be observed in order to render a donation mortis causa valid, effective and enforceable, for the Act draws no distinction between donations inter vivos and donations mortis causa. Once the donation had been perfected by delivery (as he submitted this particular donation had been), its validity could not be impeached. I am unable to uphold this contention. I have already disposed of the submission that this donation had been executed (and thus was unaffected by the statutory proviso), but it seems to me that in any event the provisions of the Act apply to donations inter vivos only and not to donations mortis causa, for the word ‘donation’ in the section should be read in the light of the existing common law as at the date of promulgation, and the common law required, in order to render a donation mortis causa valid, the same formalities to be observed as in the case of a testament, ie to be valid, effective and binding it called for compliance with the formalities required for a valid will, as laid down by the Wills Act 7 of 1953. These formalities not having been observed, the donation is without validity.

There’s more to the concept but it is buried in ancient Roman-Dutch texts. The simplest rendition I could find comes from the judgment of Hiemstra J in Oost en Andere v Reek En Snideman, NNO en Andere 1967 (1) SA 472 (T):

Voet maak daar breedvoerig duidelik dat al—of nie—herroeplikheid die onderskeid tussen die twee vorme van skenking uitmaak. Dit is ’n skenking onder lewendes (inter vivos) wanneer dit ’n onherroeplike skenking is, ongeag of die goed dadelik oorhandig word, dan wel eers na die dood van die skenker. Dit is ’n skenking met die oog op die dood (mortis causa) as ’n reg voorbehou word om dit te herroep, en as die goed eers na die skenker se dood oorhandig moet word…. Die rede waarom ’n skenking mortis causa nie toegelaat word wanneer dit verwagters kan benadeel nie, is skynbaar omdat so ’n skenking wesenlik nie van ’n testamentêre beskikking te onderskei is nie. Omdat die langslewende in omstandighede soos hierdie gebonde is aan die testament van die eerssterwende, mag hy nie ’n ander testamentêre beskikking oor dieselfde boedelbates doen nie. En omdat ’n skenking mortis causa (wat herroeplik is net soos ’n testament en waar die goed eers na die dood oorgaan) in wese nie verskil van ‘n testament nie, is so ’n skenking eweneens nietig. Wanneer daar ’n vervreemdingsbevoegdheid is, druis ’n skenking onder lewendes (waardeur die langslewende onherroeplik sy beskikkingsreg oor die goed verloor, nog tydens sy lewe) nie teen die testament in nie. Dit is slegs uitoefening van die vervreemdingsbevoegdheid.




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From TSH 9—donatio mortis causa and an executor’s fees

Donatio mortis causa and an executor’s fees A donatio mortis causa is a donation made in contemplation of death, a common example from the past being a so-called soldier’s will, made at the front, before an imminent action.

In Smith v Parsons NO and Others 2010 (4) SA 378 (SCA) (87 TSH 2010), Seriti AJA (as he then was) said (footnote suppressed):

For a donatio mortis causa to be valid it must be executed with the same formalities as are required for a will—see Jordaan and Others NNO v De Villiers. It is common cause that the suicide note does not comply with the formalities required for a valid will. But in my view the deceased did not have a donation in mind: he was regulating the disposition of the estate in anticipation of death. He did not contemplate a donation that would have to be accepted by the appellant.

The Jordaan case was covered in 112 TSH 2012. What it records is the fact that a donatio mortis causa is revocable at any time by the donor.

The reason is that, unlike other executory or statutory donations (promised donations; 152 TSH 2015, 123 TSH 2013), a donatio mortis causa creates no claim against the donor’s estate while the donor is alive. There is no acceptance by the donee and thus no contract of donation.

But, unlike a beneficiary under a testamentary disposition, you would expect the donee, upon the donor’s death, to acquire a personal right against the executor for delivery of the property concerned, at the moment of death.

Death of an expectation The Administration of Estates Act kills this expectation stone dead, simply by including in its definition of ‘heir’ in s 1 ‘a donee under a donatio mortis causa’. In other words, the donee is treated in the same way as a testamentary or intestate beneficiary, and acquires a personal right against the executor of the quality described at what I call the s 35(12) moment— that is, the moment that, under s 35(12) of the Administration of Estates Act, the estate accounts, having lain for inspection, and are confirmed by the Master,

the executor shall forthwith pay the creditors and distribute the estate among the heirs in accordance with the account.

It follows that the subject-matter of a donatio mortis causa is dealt with in the same way as any other property in the deceased estate, including the rules governing the remuneration to which an executor is entitled.




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From TSH 10—donatio mortis causa

Words & phrases: ‘donatio mortis causa’ The essentialia of a donatio mortis causa, I say, are:

It must be made out of pure liberality. It must not be accepted by the donee. It must be revocable (although its revocability need not expressly be

stated). It must satisfy the requirements for a valid will. It must be dependent upon the donor’s death. It may not disadvantage the purported beneficiary.

In Smith v Parsons NO and Others 2010 (4) SA 378 (SCA), Seriti AJA (as he then was) said (footnote suppressed):

Donatio mortis causa Smith’s counsel further submitted that the language in the suicide note is that of a donatio mortis causa rather than a will and, as such, fails to comply with the formalities required by the Wills Act, and was not accepted by the applicant prior to the deceased’s death.

For a donatio mortis causa to be valid it must be executed with the same formalities as are required for a will—see Jordaan and Others NNO v De Villiers. It is common cause that the suicide note does not comply with the formalities required for a valid will. But in my view the deceased did not have a donation in mind: he was regulating the disposition of the estate in anticipation of death. He did not contemplate a donation that would have to be accepted by the appellant.

In CIR v Marx NO 2006 (4) SA 195 (C), Van Zyl J said:

The kind of case to which it would apply seems to be those in which the donor contracts to donate irrevocably property to a beneficiary, or to a trustee for the benefit of a beneficiary, in terms of which its whole operation is suspended until his death or thereafter; that is, no delivery or transfer of the property or of any pecuniary advantage, profit or gain therefrom is to take place until then. As stated above, the mere contractual right thereby vested in the ‘donee’ is not a ‘benefit obtained by the donee thereunder’ so as to preclude the exemption from operating, and the donation would not be a donatio mortis causa, because it would not be revocable, which are both essential characteristics of the latter kind of donation (Meyer and Others v Rudolph’s Executors 1918 AD 70 at 83 and 88).

In McAlpine v McAlpine NO and Another 1997 (1) SA 736 (A) Corbett CJ said:

A donatio mortis causa is, in my view, simply a species of pactum successorium and it is not suggested that the agreements in this case meet the special requirements for validity of a donatio mortis causa, namely unilateral revocability and compliance with testamentary formalities. (See Joubert (ed) The Law of South Africa vol 8 paras 283–5.)



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In Jordaan and Others NNO v De Villiers 1991 (4) SA 396 (C), Berman J said (112 TSH 2012):

…. I have already disposed of the submission that this donation had been executed (and thus was unaffected by the statutory proviso), but it seems to me that in any event the provisions of the Act [General Law Amendment Act 50 of 1956] apply to donations inter vivos only and not to donations mortis causa, for the word ‘donation’ in the section should be read in the light of the existing common law as at the date of promulgation, and the common law required, in order to render a donation mortis causa valid, the same formalities to be observed as in the case of a testament, ie to be valid, effective and binding it called for compliance with the formalities required for a valid will, as laid down by the Wills Act 7 of 1953. These formalities not having been observed, the donation is without validity.

In Oost en Andere v Reek en Snideman NNO en Andere 1967 (1) SA 472 (T), Hiemstra j (as he then was) said (112 TSH 2012):

In sy wese is die trustakte ’n skenking wat na die skenker se dood in werking tree, maar die kenmerk van ’n skenking met die oog op die dood is nie bloot dat dit eers na die skenker se dood in werking tree nie. Van der Keessel, Praelectiones, (Gonin se voortreflike vertaling, deel IV, bl 67, para 22) stel dit as volg:

’n Skenking met die oog op die dood is, soos uit die Romeinse reg bekend is, die skenking wat uit oorweging van die (menslike) sterflikheid geskied vir die geval van die (skenker se) dood, dus met die bedoeling dat dit die skenker so lank as hy lewe, vry staan om dit te herroep. Daarom is nie elke skenking waarvan die prestasie tot die dag van die dood uitgestel word, ’n skenking met die oog op die dood en herroeplik nie; want ons kan ook onder lewendes ’n skenking so maak dat die dag waarop die verpligting van krag word, eers na die dood aanbreek, soos Voet uitvoerig bewys. Inderdaad, ons kan onder lewendes ook so skenk dat die vrygewigheid afhanklik is van die voorwaardes dat die begiftigde die skenkers oorleef, sonder dat die skenker die reg het om die skenking te herroep, waarvan daar ’n voorbeeld is by die bruidskat.

Die verwysing na Voet moet Voet, 39.5.4, wees. Voet maak daar breedvoerig duidelik dat al—of nie—herroeplikheid die onderskeid tussen die twee vorme van skenking uitmaak. Dit is ’n skenking onder lewendes (inter vivos) wanneer dit ’n onherroeplike skenking is, ongeag of die goed dadelik oorhandig word, dan wel eers na die dood van die skenker. Dit is ’n skenking met die oog op die dood (mortis causa) as ’n reg voorbehou word om dit te herroep, en as die goed eers na die skenker se dood oorhandig moet word. Die herroepingsreg hoef nie uitdruklik bepaal te word nie. Dit kan ook voortvloei uit die regsfiguur wat gebruik word. In Ex parte Steyl 1951 (1) SA 275 (O), word nadruk gelê op besinning oor die dood as aandrywende oorsaak van die skenking mortis causa. Die stelling kom ook voor in Meyer and Others v Rudolph’s Executors 1918 AD 70 op bl 83. Dit kom my egter as ’n twyfelagtige leidraad voor, waarvan ek liewer nie gebruik maak nie. Die rede waarom ’n skenking mortis causa nie toegelaat word wanneer dit verwagters kan benadeel nie, is skynbaar omdat so ’n skenking wesenlik nie van ’n testamentêre beskikking te onderskei is nie. Omdat die langslewende in omstandighede soos hierdie gebonde is aan die testament van die eerssterwende, mag hy nie ’n ander testamentêre beskikking oor dieselfde boedelbates doen nie. En omdat ’n skenking



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mortis causa (wat herroeplik is net soos ’n testament en waar die goed eers na die dood oorgaan) in wese nie verskil van ’n testament nie, is so ’n skenking eweneens nietig. Wanneer daar ’n vervreemdingsbevoegdheid is, druis ’n skenking onder lewendes (waardeur die langslewende onherroeplik sy beskikkingsreg oor die goed verloor, nog tydens sy lewe) nie teen die testament in nie. Dit is slegs uitoefening van die vervreemdingsbevoegdheid.

In Ex parte Oosthuizen 1964 (1) SA 174 (O), Smit RP said:

Na my mening is die genoemde skenkings nie donationes mortis causa nie. ’n Donatio mortis causa is een waar die grondslag van die donasie ‘de overdenking des doods, of van een dreigend doodelyk gevaar’ is. (Van der Linden 1.15.1; Meyer and Others v Rudolph’s Executors 1918 AD 70 op bl 83). Hier is die geskenke gemaak ‘ter wille van die voorgenome huwelik’ en die gebruik van die woorde ‘donatio mortis causa’ was bedoel slegs om die tyd wanneer die skenking uitgevoer sou word, aan te dui.

In Schlemmer v Viljoen en Andere 1958 (2) SA 280 (T) Marais R said:

Uit die voorgaande is dit duidelik dat ons hier met ’n suiwer donatio mortis causa te doen het. Die eienskap van so ’n bemaking of skenking is dat, hoewel die skenker gedurende sy lewe volle beheer oor die skenking behou en deur eensydige optrede die skenking kan vernietig, hy die reg van terugtrede verloor op die oomblik wanneer hy te sterwe kom. Sy oorlye is die voorwaarde waaronder die skenking onherroeplik word. (Sien Estate Smith v Estate Follett 1942 AD 364 op bl 387).


From TSH 11—common-law and executory donations

Learning the law with your PC: common-law & executory donations While investigating the topic of family arrangements, I came across the immensely useful judgment of Van Zyl J in CSARS v Marx NO 2006 (4) SA 195 (C), a case involving a donation by a father to his children of substantial amounts, payable upon his death. Anyone other than SARS would have said ‘Exempt!’, on account of s 56(1)(d) of the Income Tax Act: 56. (1) Donations tax shall not be payable in respect of the value of any property

which is disposed of under a donation— (d) in terms of which the donee will not obtain any benefit thereunder until the

death of the donor;

But not SARS. It had to lose both in the Cape Income Tax Special Court and the High Court before yielding, to the accompaniment, I am glad to report, of costs awarded against it. Here is some of what Van Zyl J said (footnotes suppressed). The headings are mine.

Common-law donation It must be borne in mind that a donation made during the lifetime of the donor (donatio inter vivos) becomes contractually and legally binding from the moment the



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donees accept the donation. It creates rights and obligations just like any other consensual contract….

The donor’s intention to make a donation (animus donandi) must arise from generosity (liberalitas) or liberality (munificentia) and be expressed as a promise (offer) to donate, which promise (offer) must be accepted by the donee before a binding contract of donation comes into existence. Once this happens the donation is perfected and it may be revoked only under certain circumstances. The resultant contract is not sufficient, however, for purposes of transferring the donated asset into the ownership (dominium) of the donee. Performance of the obligation arising from the donation, in the form of delivery (traditio) of the asset donated, first has to take place, as appears from the following dictum of Jansen JA in Mankowitz v Loewenthal:

At the outset it must be remembered that a contract of donation and the performance thereof, viz the delivery of the article donated, are two separate juristic acts: the one directed at creating an obligation and the other at transferring possession (and dominium).’

In patrimonial terms, the perfected donation creates property in the donee’s hands, in the form of a personal right against the donor (the patrimonial object is the performance due by the donor). Upon delivery in discharge of the donor’s obligation, the donee acquires the actual property (patrimonial object) promised.

Executory donations An executory donation is so called because it still requires to be effected or perfected, in the sense that something is required to be done before it can be regarded as completely performed. In the present case Traverso DJP held that the donation was executory because delivery thereof would take place at some future time, namely when the donor died. As such, it was valid and enforceable in terms of s 5 of the General Law Amendment Act 50 of 1956….

…. If the donation takes the form of a cession of rights, the donation is completed

simultaneously with the cession and there is hence no question of an executory contract, as explained by Botha J in the Weiner case:

I agree with counsel for the respondents that the family arrangement arrived at was an agreement whereby a cession was effected of the rights of Julius and the third respondent to their inheritances in Nathan’s estate, in favour of Rose. They divested themselves of their rights and Rose acquired those rights from them. Counsel for the applicant did not attack the legality of an agreement of this nature, and I am unable to think of any reason for doubting its validity. Matters such as the liability for donations tax and transfer duty do not affect the validity of the agreement. No doubt the cession of rights constituted a donation by Julius and the third respondent to Rose, but since a transfer of rights takes place by the mere agreement of cession, this was not an executory donation requiring writing for its validity in terms of the proviso of s 5 of Act 50 of 1956; in any event, the actual delivery of the assets in Nathan’s estate to Rose would have precluded any reliance being placed on the statutory provision mentioned.

It is clear from these authorities that the contract of donation, which came into existence when the donees accepted the donation contained in the deed of donation, created personal rights in terms of which the donees could claim transfer of the donation when the donor died. Only when transfer had effectively taken place would they acquire ownership in the respective amounts donated to each of them. The



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vesting of a personal right in a donee in circumstances such as the present cannot be equated with transfer of ownership of, or of any other right in, the donation. The deed makes it clear that such transfer cannot take place before the death of the donor. This accords, in my view, with the following extract from the judgment of Trollip J in [ITC 1192 (1965) 35 SATC 213 (C) at 219.]:

It may be asked in what case then, other than donations mortis causa (for they are specially exempted under the preceding paragraph of s 56(1)), was it intended that the exemption should apply.

The kind of case to which it would apply seems to be those in which the donor contracts to donate irrevocably property to a beneficiary, or to a trustee for the benefit of a beneficiary, in terms of which its whole operation is suspended until his death or thereafter; that is, no delivery or transfer of the property or of any pecuniary advantage, profit or gain therefrom is to take place until then. As stated above, the mere contractual right thereby vested in the ‘donee’ is not a ‘benefit obtained by the donee thereunder’ so as to preclude the exemption from operating, and the donation would not be a donatio mortis causa, because it would not be revocable, which are both essential characteristics of the latter kind of donation (Meyer and Others v Rudolph’s Executors 1918 AD 70 at 83 and 88).

There is hence no merit in Mr Van Rooyen’s argument that the reference in the deed of donation to a ‘vested right’ in the donation evinced the intention of the immediate transfer of ownership. In certain circumstances this may be the case, but not so in the present case. On my reading of the deed, such transfer has been unequivocally postponed to the occurrence of a future event, namely, the death of the donor.

The word vested is very dangerous, especially when used by lawyers, as opposed to tax accountants.

Had the donations tax been based on a simple patrimonial event—the creation of a personal right against the donor—donations tax would have been payable by the donor in this matter. It is based, rather, on a perfected donation, and were that to have been the basis of the donations tax, the donor would have again been liable. But you cannot ignore the exemption in s 56(1)(d)—it has to be given gestalt. It clearly envisages a perfected donation, but does not tax it.

You could argue that the donee’s personal right, which is property, against the donor is a benefit (as in will not obtain any benefit thereunder until the death of the donor) but, then, what on earth would be the purpose of the exemption?

On a donatio mortis causa, see 112 TSH 2012. [Source:123 TSH 2013]

From TSH 12—common-law donations v ‘donation’

Learning the law with your PC: donation v ‘donation’

Ovenstone In the famous case of Ovenstone v SIR 1980 (2) SA 721 (A), Trollip JA said:

In a donation the donor disposes of the property gratuitously out of liberality or



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generosity, the donee being thereby enriched and the donor correspondingly impoverished, so much so that, if the donee gives any consideration at all therefor, it is not a donation (see The Master v Thompson’s Estate 1961 (2) SA 20 (FC) at 24F–26C, 48F–49C, where all the authorities are collected). It can therefore be regarded as a unilateral contract in the sense that the donor is the only party upon whom any obligation lies.

A donation is not truly a unilateral contract (which is in any event a contradiction in terms), since it is subject to acceptance (or, in an immediate, as opposed to an executory donation—123 TSH 2013—at least receipt) by the donee.

Welch’s Estate Much more recently, in Welch’s Estate v CSARS 2005 (4) SA 173 (SCA), Marais JA said:

The test to be applied at common law to determine whether the disposition of an asset amounts to a donation properly so called (as opposed to a remuneratory donation) is so well-settled that it hardly needs repetition. The test is of course that the disposition must have been motivated by ‘pure liberality’ or ‘disinterested benevolence’. As it was put in De Jager v Grunder, ‘Was die dryfveer iets anders as suiwer vrygewigheid en welwillendheid jeens die eiser, was dit geen skenking nie.’ Furthermore, there is a presumption against donations in our law.

What is a remuneratory donation? Watermeyer ACJ (as he then was) once said of such donations, in the case leading to The Master v Thompson's Estate 1961 (2) SA 20 (FC), that

they are not inspired solely by a disinterested benevolence but are, as a rule. made in recognition of, or in recompense for benefits or services received, and therefore are akin to an exchange or discharge of a moral obligation. Whether or not a donation is remuneratory must, of course, depend principally on the motive inspiring the gift.

Yet, having made this distinction between common-law donations proper and remuneratory donations, in Welch’s Estate, Marais JA went on, at some length, to equate a common-law donation with a ‘donation’ for donations tax purposes (s 55 of the Income Tax Act): ‘[D]onation’ means any gratuitous disposal of property including any gratuitous

waiver or renunciation of a right;

The gravamen of his carefully reasoned argument is contained in the following passage:

In my opinion the Legislature has not eliminated from the statutory definition the element which the common law regards as essential to a donation, namely, that the disposition be motivated by pure liberality or disinterested benevolence and not by self-interest or the expectation of a quid pro quo of some kind from whatever source it may come.



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What about intent? I have never agreed with this view (66 TSH 2008), since I do not see the statutory definition as including the same quality of intent as its common-law predecessor. In any event, some reason has surely to be found why the legislature saw fit to define a word with such a widely accepted common-law meaning. The implication is surely that something other than a common-law donation was intended.

Verseput In Avis v Verseput 1943 AD 331, Tindall JA said

I have given reasons for holding that it was not a remuneratory donation. But from this conclusion it does not follow that the promise was a genuine donation. It is true that it was gratuitous but the mere fact that the promisor Avis did not stipulate for any quid pro quo does not make the promise a donation;…. In the present case the motive of Avis is the test; the promise having been made for business reasons closely connected with the dissolution, it was not a genuine donation.… A promise of such a nature does not seem to me to have been contemplated by the authorities in their discussion of the meaning of donatio.

Thompson’s Estate Yet, in Thompson's Estate, Clayden ACJ (as he then was) did not appear to support Tindall JA’s view:

…it seems to me that these authorities show that the existence of other motives for the making of a donation do not alter its character. They show that where something is received in return, where there is some consideration, the transaction is not a donation; that is the basis of the decision in Avis v Verseput. They show that the intention which is paid regard to is an intention to enrich.

The abstract question While all of these cases were doubtless correctly decided on their facts, on the abstract question whether a donations-tax donation may be equated with a common-law donation, my current view is that the question is irrelevant. A donation for donations tax purposes, I say, includes:

A common-law donation designed purely to impoverish the donor and enrich the donee.

A donation, no matter what might be its motives other than liberality, whether or not it qualifies as a common-law donation.

A remuneratory donation.

I even have proof that I am at least two-thirds right, in the form of the s 56(1)(k) exemption of voluntary awards included in ‘gross income’ under paras (c), (d) or (i) of the definition of that term or gains included in a donee’s income under ss 8A, 8B or 8C.

These are clearly remuneratory donations, and there would be no need to exempt them if they were not first embraced by the definition of a ‘donation’ for donations tax purposes.



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Thus donations tax deals with more than just common-law donations. [Source: 126 TSH 2013]

From TSH 13—executory donations

Property rights & delivery: executory donations I cannot say where but I recently came across a footnote reference to CSARS v Marx NO (A720/05) [2006] ZAWCHC 9; 2006 (4) SA 195 (C) (9 March 2006). It is an undistinguished case, in the sense that it was not taken on appeal, and there is no record, either in SALR or SAFLII, that it was considered worthy of mention in any other reported judgment.

But Julian Ware covered it in 43 TSH 2006, because it was reported in SATC, and I quoted extensively from the judgment in 123 TSH 2013, because I thought it included a useful description of executory donations, and helped to distinguish a donatio mortis causa (a revocable gift in contemplation of death; 112 TSH 2012) from a donation delaying any benefit for the donee until the death of the donor, issues relevant to exemptions from the donations tax to be found in, respectively, s 56(1)(c) and (d) of the Income Tax Act. And the case enjoys a mention in the excellent SARS publication Comprehensive Guide to CGT (Issue 4).

What puts it beyond the pale is the outrageous argument raised by SARS, based upon an entirely imaginary loan, about which the less said the better. Van Zyl J, who delivered the unanimous judgment of the court, was awfully polite in devoting so much attention to the entirely insupportable official position.

What is an executory donation? I have suppressed a footnote in the following extract from the judgment:

An executory donation is so called because it still requires to be effected or perfected, in the sense that something is required to be done before it can be regarded as completely performed. In the present case Traverso DJP held that the donation was executory because delivery thereof would take place at some future time, namely when the donor died. As such it was valid and enforceable in terms of section 5 of the General Law Amendment Act 50 of 1956, the relevant portion of which reads:

No donation concluded after the commencement of this Act shall be invalid merely by reason of the fact that it is not registered or notarially executed: provided that no executory contract of donation entered into after the commencement of this Act shall be valid unless the terms thereof are embodied in a written document signed by the donor….

And, for a real-life example of such a donation, here are the terms of the very donation under consideration by the court:

1. Donation The donor donates (irrevocably) to the donees, as a donation inter vivos, the sum of R5 000 000 (Five Million Rand) to each of the donees. 2. Delivery The donees shall be entitled on signature of this deed to a vested right in the



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aforementioned asset but shall not receive any benefit until the death of the donor. 3. Acceptance The donees gratefully accept the donation.

This is sufficient information to show that (a) there is a generally irrevocable contract in existence between the parties but (b) delivery of the subject-matter of the donation has yet to take place. In fact, the contract is subject to a term (not a suspensive condition), to the effect that delivery will take place upon the death of the donor. It amounts to a vesting, subject to a time-clause.

Again, footnotes are suppressed:

It must be borne in mind that a donation made during the lifetime of the donor (donatio inter vivos) becomes contractually and legally binding from the moment the donees accept the donation. It creates rights and obligations just like any other consensual contract….

The donor’s intention to make a donation (animus donandi) must arise from generosity (liberalitas) or liberality (munificentia) and be expressed as a promise (offer) to donate, which promise (offer) must be accepted by the donee before a binding contract of donation comes into existence. Once this happens the donation is perfected and it may be revoked only under certain circumstances. The resultant contract is not sufficient, however, for purposes of transferring the donated asset into the ownership (dominium) of the donee. Performance of the obligation arising from the donation, in the form of delivery (traditio) of the asset donated, first has to take place….

So what actually vests in the donees? Yet the donees are not left twiddling their thumbs until the donor’s demise, since they immediately enjoy a personal right against the donor, or, rather, the donor’s executors to deliver the promised amounts upon the donor’s death. Such a personal right is a form of property, for the reason that it vests in the donees. Being non-assignable, it lacks any direct value, and may be turned into account only by more elaborate means (having, in my view, surprising fiscal consequences).

What does have value is the certain, ultimate transfer of dominium to the donees or their executors, and its present value at the date of the donation is readily ascertainable by an actuary or professional valuer. If I may be allowed to restate my inarticulately expressed views in 123 TSH 2013, it is this value that is exempted by s 56(1)(d).

How did Van Zyl J deal with the personal rights of the donees?

It is clear from these authorities that the contract of donation, which came into existence when the donees accepted the donation contained in the deed of donation, created personal rights in terms of which the donees could claim transfer of the donation when the donor died. Only when transfer had effectively taken place, would they acquire ownership in the respective amounts donated to each of them. The vesting of a personal right in a donee in circumstances such as the present cannot be equated with transfer of ownership of, or of any other right in, the donation. The deed makes it clear that such transfer cannot take place before the death of the donor.




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From TSH 14—pactum succesorium

Words & phrases: ‘pactum succesorium’ Once you find a decision of the Appellate Division, with the judgment of the majority delivered by Corbett CJ, you can stop searching for a definitive view on a topic, such as the import of ‘pactum successorium’, a term to which my imperfect education has yet to expose me. The case is McAlpine v McAlpine NO and Another 1997 (1) SA 736 (A):

The pactum successorium occupies a somewhat shadowy position between contract and testation. It is frowned upon by the law because it tends to inhibit freedom of testation and because, if allowed, it would result in the circumvention of the rules relating to the formal execution of wills. But for these reasons it is only a contractual disposition which, like a testamentary one, vests the right in question in the promisee upon or after the death of the promissor that should fall foul of the rule which invalidates pacta successoria. Accordingly, it seems only logical that vesting should be the litmus test for identifying a pactum successorium.

What is the ‘vesting’ test?

…. This test is applied by asking in a particular case whether the promise disposing of an asset in favour of another (whether by way of donation or other form of contract) causes the right thereto to vest in the promisee only upon or after the death of the promissor (which points to a pactum successorium); or whether vesting takes place prior to the death of the promissor, for instance, at the date of the transaction giving rise to the promise (in which case it cannot be a pactum successorium).

The meaning of the term is to be found in the ‘leading judgment on the pactum successorium’, that of Rabie JA in Borman en De Vos NNO en ’n Ander v Potgietersrusse Tabakkorporasie Bpk en ’n Ander 1976 (3) SA 488 (A):

’n Pactum successorium (of pactum de succedendo) is, kort gestel, ’n ooreenkoms waarin die partye die vererwing (successio) van die nalatenskap (of van ’n deel daarvan, of van ’n bepaalde saak wat deel daarvan uitmaak) van een of meer van die partye ná die dood (mortis causa) van die betrokke party of partye reël…. ’n Ooreenkoms van hierdie aard druis in teen die algemene reël van ons reg dat nalatenskappe ex testamento of ab intestato vererf, en word as ongeldig beskou…, behalwe in die geval waar dit in ’n huweliksvoorwaardekontrak beliggaam is….

Said Corbett CJ:

…. I am of the opinion that the classic form of pactum successorium, as described by the Roman-Dutch authorities, included the reciprocal appointment of heirs of the indirect type, ie where in terms of the contract itself and without reference to wills A and B agree to appoint one another as heir to their respective estates.

On a donatio mortis causa (112 TSH 2012), he said:



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A donatio mortis causa is, in my view, simply a species of pactum successorium and it is not suggested that the agreements in this case meet the special requirements for validity of a donatio mortis causa, namely unilateral revocability and compliance with testamentary formalities.


Chapter 3: Estate duty—corporate interests


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CHAPTER 3

Estate duty

Corporate interests

Corporate ownership at death In the widest sense, there is nothing special about owning an interest in a company as part of an individual’s overall planning, since it is property in the same way as all the other assets owned by a deceased at the date of death are property, and, as property, will form part of the property of the deceased as at the date of death under s 3(1) of the Estate Duty Act.

What is property in an estate? The Estate Duty Act makes a distinction between actual and deemed property, depending, essentially, upon whether it falls under the jurisdiction of a domestic executor or some foreign equivalent. The charging provision is s 3(1).

Section 3—EDA

Estate Duty Act 2—charging provision (s 3(1))

What constitutes an estate [ Checked against the original text of Act 45 of 1955]

EDA s 3(1)

What constitutes an estate 3. (1) For the purposes of this Act the estate of any person shall consist of all

property of that person as at the date of his death and of all property which in accordance with this Act is deemed to be property of that person at that date.



The expression all property of that person as at the date of his death clearly refers to property belonging to the deceased at that date, and property is to be understood in it widest, common-law sense—and is not to be confused with fixed property, which is merely a member of the set of rights comprising property.



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Actual property is identified in the definition of ‘property’, to be found not in s 1(1), the definitional provision, but in s 3(2), which is a (generally inadvisable) mixture of a definitional and a substantive provision, inasmuch as it not only defines ‘property’ but includes an effective exemption from estate duty for a deceased not ordinarily resident in the Republic at the date of death.

Section 3—EDA

Estate Duty Act 3—‘property’ (s 3(2))

Definition—actual property

EDA s 3(2), extract

(2) ‘Property’ means any right in or to property, movable or immovable, corporeal or incorporeal, and includes—

(a) [limited interests ceasing]; (b) [limited interests passing], [sic]


(bA) [nondeductible contributions to retirement funds and non-exempt purchased annuities];


but does not include— [ Checked against the original text of Act 45 of 1955]

(c) in the case of a deceased who was not ordinarily resident in the Republic at the date of his death, any right in immovable property situate outside the Republic;


(d) any right in movable property physically situate outside the Republic if the deceased was not ordinarily resident in the Republic at the date of his death;


(e) any debt not recoverable or right of action not enforceable in the Courts of the Republic if the deceased was not ordinarily resident in the Republic at the date of his death;


(f) any goodwill, licence, patent, design, trade mark, copyright or other similar right not registered or enforceable in the Republic or attaching to any trade, business or profession in the Republic if the deceased was not ordinarily resident in the Republic at the date of his death;


(g) in the case of a deceased who was not ordinarily resident in the Republic at the date of his death—

(i) any stocks or shares held by him in a body corporate which is not a company; and

(ii) any stocks or shares held by him in a company, provided any transfer whereby any change of ownership in such stocks or shares is recorded is not required to be registered in the Republic;




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(h) any rights to any income produced by or proceeds derived from any property referred to in [s 3(2)(e), (f) or (g)]. [sic]


(i) so much of any benefit which is due and payable by, or in consequence of membership or past membership of, any pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund as defined in the Income Tax Act, 1962 (Act no 58 of 1962), on or as a result of the death of the deceased.



As noted, and, strangely for a definitional provision, s 3(2) creates separate regimes for a deceased who was ordinarily resident in the Republic as at the date of death and a deceased who was not. The upshot is that, for a deceased who was so ordinarily resident, estate duty is imposed upon worldwide actual property, while, for a deceased who was not, it is imposed, essentially, upon property located or considered to be located in the Republic.

Ordinarily resident deceased For a person ordinarily resident in the Republic at the date of death, interests in both domestically listed or unlisted companies and their foreign equivalents and domestic close corporations will all be included.

Although a ‘company’ is defined in s 1(1), the definition is irrelevant when a deceased is ordinarily resident in the Republic at the date of death, since the interest concerned will be included in ‘property’ under the preamble to the definition of that term in s 3(2):

EDA s 3(2), extract



Such an interest will comprise a right in or to property, which probably is intended to reference both limited and full rights in a particular property; it will be classified as being movable (immovable property is fixed property); and it will be classified as being incorporeal (corporeal property has a physical, material existence).

Implications (ordinarily resident) Worldwide corporate interests are included in the estate. If, prospectively (in an individual’s planning), there are any plausible alternatives—with potential estate duty advantages—to continued personal ownership, they need to be considered in relation to both domestic and foreign corporate interests. Should the planner also be a



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resident for exchange control purposes, the EXCON regulations will have to be taken into account insofar as foreign corporate interests are concerned (see Chapter 10).

Non-ordinarily resident deceased For a person not ordinarily resident in the Republic at the date of death, the first task is to identify which paragraph of the exclusions from ‘property’—from among s 3(2)(c) to (i)—applies to a particular interest.

Stocks or shares The paragraph most apposite is s 3(2)(g):

EDA s 3(2)(g)








Thus:

If the interest comprises stocks or shares held in a body corporate that is not a company, it is excluded under s 3(2)(g), regardless of where it might be considered to be located in the world. Throughout the tax Acts, held means owned.

If the interest comprises stocks or shares held in a company without a share register in the Republic, it is excluded under s 3(2)(g). Again, held means owned.

If the interest comprises stocks or shares held in a company with a domestic share register, it fails to win exclusion under s 3(2)(g), and so is ‘property’ for estate duty purposes.

Under the maxim generalia specialibus non derogant (a detailed provision overpowers a general one; 162 TSH 2016), property matching any one of these bulleted descriptions is to be considered for exemption exclusively under s 3(2)(g). Only if a corporate interest does not fit this particular bill would you investigate whether some other exclusion from the definition of ‘property’ applies (s 3(2)(c) to (i)), and, if none does apply, the property concerned, despite being held by a deceased not



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ordinarily resident at the date of death, would be ‘property’ for estate duty purposes and so vulnerable to the imposition of estate duty.

This outcome illustrates what is odd about the Estate Duty Act: its opening stance is that all those in world not ordinarily resident in the Republic are liable to estate duty, unless specifically exempted. (The unspoken rider admits the limitations of such an approach—to the extent that South Africa enjoys the jurisdictional power to impose estate duty on a global basis).

Meaning of ‘stocks or shares’ Whatever the expression stocks or shares might mean in its ordinary sense, the term ‘stocks or shares’ enjoys a narrow, domestically oriented definition in s 1(1).

Section 1—EDA

Estate Duty Act 4—‘stocks or shares’ (s 1(1))

Definition

EDA s 1(1) sv ‘stocks or shares’

Definitions [ Checked against the original text of Act 45 of 1955]

1. (1) In this Act and in any regulations made thereunder, unless the context otherwise indicates—


‘[S]tocks or shares’ in relation to any company means any part of the share capital or members’ interest of that company and includes any debenture, debenture stock or any other like form of marketable security.


Defined terms—see s 1(1) Company.

In the first place, the inclusion in the definition of members’ interest in a company constitutes a clear reference to a close corporation, which, it is to be fervently hoped, is purely a domestic affliction, not to be encountered in the civilized world.

Meaning of ‘company’ More importantly, a ‘company’ is defined in s 1(1) in a strictly domestic sense.



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Section 1—EDA

Estate Duty Act 5—‘company’ (s 1(1))

Definition

EDA s 1(1) sv ‘company’




‘[C]ompany’ includes any association incorporated or registered under any law in force in the Republic and any association which, although not so incorporated or registered, carries on business or has an office or place of business or maintains a share transfer register in the Republic;



The various types of a ‘company’ envisaged by the Estate Duty Act thus comprise:

An association incorporated or registered under domestic law. An association carrying on business in the Republic, while not

being incorporated or registered here. An association with an office or a place of business in the Republic,

while not being incorporated or registered here. An association maintaining a share register in the Republic, while

not being incorporated or registered here.

The exemption of foreign corporate interests It is against this background that the s 3(2)(g) effective exemption is to be judged:

EDA s 3(2)(g)

(2) ‘Property’ means any right in or to property, movable or immovable, corporeal or incorporeal…







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On that basis, the exemption is a little odd:

Section 3(2)(g)(i): ‘Stocks or shares’ are defined in relation to a company; ostensibly, a ‘company’ as defined in s 1(1). Yet the situation envisaged is one in which a body corporate is not a ‘company’!

A solution to this conundrum is to take it that company in the definition of ‘stocks or shares’ is not used in its defined sense, as is in fact allowed under the preamble to s 1(1):

EDA s 1(1)




The clear intention, in any event, is to exclude any body corporate that is not an association incorporated or registered under domestic law, or, while not being so incorporated or registered, is also not carrying on business in the Republic, does not have an office or a place of business in the Republic, and does not maintain a share register in the Republic. In other words, all stocks or shares in foreign body corporates without any targeted domestic links (business, office, place of business, share register) are effectively exempted.

Section 3(2)(g)(ii): Both ‘stocks or shares’ and ‘company’ are used in their strictly defined senses, but the particular stocks or shares owned by the deceased are not governed by the requirements of a domestic share register.

In other words, when ownership in them changes, the change in ownership is not required to be registered in a domestic register, even if a domestic register is maintained. What is envisaged is that there is dual or even multiple registration, but the exempted stocks or shares are catered for exclusively on a foreign register, with no obligation for domestic registration.

And, since ‘company’ is clearly used in its defined sense, it makes no difference whether it is an association carrying on business in the Republic, with an office or a place of business in the Republic, or



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maintaining a share register in the Republic. (The only thing it cannot be is an association incorporated or registered under domestic law.)

Implications (not ordinarily resident) Since effectively exempted foreign corporate interests are excluded from the estate, there is no need, prospectively (in planning), to pay them any especial attention for estate duty purposes, at least as far as the planner alone is concerned.

Ordinarily resident v not so resident As already indicated, the Estate Duty Act is drawn on the basis that it applies to the entire globe, with only an implicit acknowledgment that its territorial reach will be constrained by sovereign jurisdictional limitations. The exclusions of property situated outside of the Republic owned by a deceased not ordinarily resident in the Republic at the date of death, contained in s 3(2), are, somewhat recklessly, presented in an itemized, particularized form but are generally taken to have the effect of excluding all property situated outside of the Republic owned by such a deceased.

The question is not to locate the place where the deceased died—that is irrelevant. What counts is the place where he or she was ordinarily resident at the date of death.

Ordinarily resident Since ordinarily resident is not defined, and is not to be confused with the definition of ‘resident’ in s 1(1) of the Income Tax Act or the definition of ‘resident of the Republic’ in s 1(1) of the Value-Added Act, its meaning must be derived from the common law, as it applied when the Income Tax Act relied exclusively upon the concept of ordinarily resident (it still features in the definition of ‘resident’ in s 1(1) of the Income Tax Act).

In very broad terms, a person is ordinarily resident in the country to which he would return ‘after his wanderings’, or to locate his usual or principal residence (also the place where he keeps his shooting box, or owns his burial plot).

The Republic The other term not defined is Republic. Possibly, in this context it might mean the landmass of the RSA, as internationally recognized, including any land located in the territorial waters (the twelve-mile zone), to the exclusion of the maritime zones beyond the territorial waters.

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