Recent changes to legislation have made it more frustrating and time-consuming to wind up deceased estates.
Taxing the estate and a problem for SARS
Prior to 1 March 2016, any taxable income that accrued to a deceased estate was taxed in the hands of the heirs of the estate.
The problem for SARS with this was that often the heir was unaware that part of the inheritance was in fact taxable income and thus this was not declared to Revenue resulting in it “slipping between the cracks”.
The new position
Estates where the person died on or after March 1 2016 are required to register the deceased estate as a taxpayer and to account for income and expenditure until the liquidation and distribution account of the deceased estate is drawn up. Whilst this adds to the administration burden on the deceased estate, it ensures that SARS do not lose this erosion in the tax base.
But it gets worse
When the final liquidation and distribution account is completed (this reconciles all the assets and liabilities of the estate, how much is due to the authorities and the balance distributed to the heirs) there is a time lag of a few months due to it being checked by the Master of the Court, then by SARS, and then it is open to public scrutiny for any creditors or heirs to query it.
In this period, more income can accrue to the estate which means tax needs to be paid to SARS and another final liquidation and distribution account be drawn up. This can become a “groundhog day” event, causing delay and frustration.
Hopefully, sense will prevail and SARS will amend this legislation to provide that from the date of the lodging of the final liquidation and distribution account, the heirs and beneficiaries become liable for any further tax.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)