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to that person for a consideration that does not reflect an arm’s length price,
then:
u The donor must be treated as having disposed of the asset for proceeds
equal to the market value of the asset at the date of disposal and the
person who acquired the asset must be treated as having acquired it at a
cost equal to that market value.
n Donations between spouses are subject to roll-over relief.
n A donation which takes the form of writing off a debt which is regarded as
gratuitous in nature, and therefore regarded as a donation, will not also
be subject to capital gains tax. This will also apply to the utilisation of the
annual R100 000 donation tax exemption to reduce a debt. This is important
to bear in mind when drafting a Last Will and Testament, as if a beneficiary
is relieved of an obligation to repay a loan to the deceased estate in the Will,
there will not be a capital gain in the hands of the beneficiary if the debt in
question was included as property of the testator for estate duty.
Capital gains tax and liquidity
n In order to prevent liquidity problems caused by excessive capital gains tax:
u Where the capital gains tax liability exceeds 50% of the net value of the
estate (before taking capital gains tax into account), and
u The executor is required to dispose of an asset to pay the capital gains
tax,
n The heir can elect to accept the asset and the liability for the excess over
50% of that net value, the liability plus interest will have to be paid by the
heir within three years.
Capital gains tax and estate planning
n The estate planner needs to evaluate the impact of capital gains tax on his
estate plan.
n Capital gains tax may place a burden on the liquidity of an estate.
n A carefully structured Will could go a long way in minimising the capital
gains tax effects in the estate itself, as there is no exclusion available to the
deceased estate.
n When considering whether to transfer a primary residence out of a legal
entity into an estate planner’s personal name, evaluate the full tax liabilities
for both forms- in many cases, the capital gains tax liability is less than the
combined effect of executors fees and estate duties.
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