Taxation of deceased estates – How to register a DECEASED ESTATE

Changesin legislation from 1 March 2016

• Deaths prior to 1 March 2016:
  • Post death income is taxable in the hands of the beneficiary.
  • There is a deemed capital gain tax (CGT) event on date of death of the deceased.
  • During the liquidation process, accounting for CGT on the disposal of assets is by way of aSpecial Trust registered at SARS.
  • A Special Trust still applies for deaths prior to 1 March 2016 which are still currently being administered.
• Deaths on or after 1 March 2016:
  • Post death income is taxable in a new entity referred to as a Deceased Estate (DE).
  • A DE is regarded as an entity for tax purposes and has its own number.
  • A DE is not a legal entity.
  • A DE is treated as a natural person.
  • Not every DE needs to be registered for tax.
  • There is still deemed CGT on date of death.
  • Use of Special Trusts do not apply.

Note: In terms of Section 25, read with Section 9HA of the Income Tax Act, 1962.

How to register/code a deceased person?

• An Executor must notify SARS of the death by:
  • visiting the nearest SARS branch or
  • sending an email to the Contact Centre closest to the Master of the High Court where the estate is being administered:

Which documents are required for SARS for the deceased person?

• Death certificate or death notice
• Identity document of deceased person
• Letters of Executorship (J238) (if applicable) and Letter of Authority (J170) )(in cases where the estate is less than R250 000)
• Certified copy of the executors identity document
• Special Power of attorney (if applicable)
• Proof of physical address and contact details of executor or agent
• Last ‘Will’ and ‘Testament’ of the deceased person
• An inventory of the deceased persons assets
• The liquidation and distribution accounts (if available)

Steps to register a Deceased Estate

Note: Applicable only to deaths on or after 1 March 2016 where the deceased estate requires registration at SARS. The assessment of income applies only to the new number that is issued by SARS.

• Deceased person mustfirst be registered and coded by SARS as a Deceased Estate before theycan be registered for income tax.
• The DE registration may be done at a SARS branch or via eFiling.
• SARS will issue a new number to the DE which will be linked to the existing income tax reference number of the deceased person.
• The Executor must request for registration of the DE as soon as there is income (exclusions and exceptions exempted) after date of death.
• It is not necessary that the deceased persons tax reference number be deactivated at SARS before a DE may be registered.
• The deceased persons tax reference number must simply be coded as a Deceased Estate on the SARS system before a DE can be registered.
• Where an executor has not registered a DE, a SARS auditor may register the DE while auditing the deceased person where it has been determined that there is relevant or qualifying income after date of death per the Income and Expenditure Account which requires a DE to be registered.
• Documents required to register a deceased estate:
  • Death certificate
  • Letter of executorship
  • Certified copy of the executor’s ID
  • Proof of the physical address and contact details of the executor or agent
  • Power of Attorney (if applicable)
  • Liquidation and distribution account
• What is the qualifying income?
  • All local and foreign income
  • Investment income
  • Rental income from immovable property
  • Trading income
  • Farming income
  • Trust income
  • Capital gains on assets disposed by Executor
  • NO IRP5/IT3a type income e.g. lump sums or vesting of share options
  • Any income that accrues after date of death e.g. a bonus accrues to the deceased person as at date of death and not to the DE, such income must be declared in the deceased persons last return.
• Which deductions/exemptions apply?
  • Interest exemptions forbelow 65 year old apply even if the deceased person is older than 65.
  • Any capital gain on the disposal of a primary residence, where the gain does not exceed R2 million, will be disregarded.
  • Where a property is inherited by a surviving spouse there will be no capital gains tax implication, the roll-over will apply.
  • Capital gains tax exclusions on the sale of primary residence and personal use assets will apply:
    • The DE will be taxed at the same rate and enjoy the same inclusion rate applicable to ordinary or living taxpayers.
    • The exclusion and inclusion rates can be used as per the current tax year of assessment.
  • Medical and travelling deductions are not allowed in a DE.
  • Provisional tax does not apply to a DE
  • A DE is not entitled to rebates
  • A DE is not liable for estate duty
  • Estate duty is not claimable as a deduction in the DE.
• Marriages in community of property
  • Where the deceased person was married in community of property and income is earned by the DE, 50% of the income must be declared by the DE and the other 50% must be declared by the surviving spouse.
  • All income, both local and foreign (including Investment income and rental income) as well as capital gains and foreign credits must be reflected as 50%.
  • A capital gain up to R1 million in respect of the disposal of a primary residence may be claimed in the DE, the balance must be reflected in the spouses return.
• Assessed Loss
  • No assessed loss including capital gains tax assessed loss may be carried over from the deceased person to the Deceased Estate (DE).
  • The DE will be allowed to carry over losses per year, until the Liquidation and Distribution (L&D) account becomes distributable.
• Assessment of Income of the deceased estate
  • Income tax assessments must be submitted for every year per year of assessment until such time as the estate becomes distributable.
  • Regardless of an estate being finalised during the course of a year of assessment, an income tax return must be submitted for the full year of assessment during which the liquidation process was finalised.
  • The income and expenditure must be split per year where it takes more than one financial year to finalise the estate.
  • Age and marital status is ignored for purposes of assessment of a DE.
  • The Liquidation and Distribution (L&D) account must be submitted in order to prove any of the following:
    • Income received by the executor
    • Assets acquired by the DE from the deceased person
    • Assets disposed of by the DE to an heir or legatee
    • Assets disposed of by the Deceased Estate to a resident surviving spouse
  • The assessment of this income up to date of the final L&D account as approved by the Master of the High Court will form part of the expenditure in the Income and Expenditure Account of the Deceased Estate and is due and payable by the Executor.
  • The usual expenses as in the Income and Expenditure account are allowed to be claimed by the DE.
  • The following expenses are not allowed as deductions in the deceased estate:
    • Advertisement costs for debtors and creditors
    • Advertisement costs for liquidation and distribution account
    • Masters fees
    • Executors remuneration (3.5%)
    • VAT on the executors remuneration
    • Postage and petties
• The DE is liable for any tax applicable to income earned during the advertisement period up to approval.
• Any income earned during the advertisement period up to approval must be declared in the DEs final income tax return although not reflected in the Income and Expenditure account of L&D account.
• Any Income earned post approval of the L&D account accrues to the beneficiaries.
• The Executor must inform beneficiaries to declare such income in respective returns.