Further updates from the Davis Tax Committee and its interim report – Estate Duty

While the initial proposal and expectation in regards to estate duty was that it be removed from our current tax system, the Davis Tax Committee has recommended in its recent interim report on estate duty, that it be retained, subject to a few changes. The focus was on estate duty avoidance, use of trusts, inter-spouse bequests, donations tax, capital gains tax, retirement funds and abatements.

The Report recommends an increase of the primary abatement of R3.5 million to R6 million, to accommodate inflation, but then suggests that all inter-spouse exemptions and roll-overs should either be withdrawn or limited.

In addition, the committee has suggested that trusts should be taxed as separate taxpayers, instead of our current position which places the tax duty on beneficiaries. This stems from the committee’s findings that where “the attribution principle, which underpins taxation of a beneficiary in a trust, was intended as an anti-avoidance principle to prevent a trust from being used as an income splitting device”, taxpayers are now diverting income away from the trusts and effectively making use of lower tax rates. It is further recommended by the committee that distributions of foreign trusts be taxed as income, in the hopes that this will “discourage offshore trust formation”.

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