A post death income tax return has been prepared for a deceased estate. Included in this return is all income to the date of death. The estate I currently under audit in order to receive clearance certificates. The auditor has issued a second post death assessment in which he has included income after the date of death. Is this correct?
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
We accept that the date of death of the individual was on or after 1 March 2016. It is SARS’s view, most recent, that “income, which accrues to the estate after the death of the deceased but before the distribution of the assets to the beneficiaries, is dealt with under section 25 of the Income Tax Act.” See https://www.sars.gov.za/TaxTypes/EstateDuty/Pages/default.aspx Unfortunately the Income tax Act doesn’t give guidance with respect to when the ‘estate of the deceased person’ ceases to be a taxpayer – as it does with respect to the deceased. SARS previously stated the following on their website (it differs slightly to the one above): Income is no longer permitted to flow through to an ascertainable heir or legatee and the estate must account for all its income until the liquidation and distribution account becomes final, after which the heirs must account for the income, even if it is derived in the name of the estate (for example, interest on an estate bank account). The fact that income earned during the 21-day period is not reflected in the liquidation and distribution account is irrelevant for the purposes of determining the estate’s tax liability. After this date, the conduit principle will apply. This seems to be what SARS’s view is in your case as well. As I indicated above, SARS’s view is not based on the legislation and it is worth challenging that.