If an asset is bequeathed subject to a usufruct - so lets say property bequeathed to a to trust but subject to usufruct of Mrs. X. Does the value of the bare dominium become the base cost in the hand of the trust?
Important:
This answer is based on tax law for the tax year ending 28 February 2017.
Answer:
It is not the value of the property (the full value) but the value of the bare dominium that becomes the base cost to the trust. The disposal by the deceased, in terms of section 9HA of the Income Tax Act, and for deaths after 1 March 2016, is at market value. The market value is then used to calculate the value of the usufruct and if that is deducted from the ‘full’ value the result is the value of the are dominium.
SARS makes the following comments in their CGT guide about this:
The base cost of the bare dominium disposed of by the deceased person to his or her estate must be determined under the part-disposal rules in para 33. The proportion of the expenditure and any market value on valuation date to be allocated to the usufruct is determined in accordance with the ratio that the market value of the usufruct on date of death bears to the market value of the total asset on the same date. The portion of the total expenditure and any market value on valuation date attributable to the bare dominium is the balance (that is, the total expenditure and any market value less the portion attributed to the usufruct).