Mr and Mrs S held 3 foreign properties in joint names – the title deeds and mortgages etc reflect as such as well. In 2017 they divorced – in terms of the agreements, Mrs S “took over” one property as hers wholly (100%) while the other 2 was then awarded
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
It may be relevant to the issue and we accept that the property was jointly owned, but they were not married in community of property until the divorce. This is quite a complex issue.
Under section 56(1)(b) of the Income Tax Act, donations tax is payable in respect of the value of any property which is disposed of under a donation to or for the benefit of the spouse of the donor who is not separated from him under a judicial order or notarial deed of separation. However, donation tax is only payable if there was a donation – gratuitous disposal. In this regard the comment by Judge Zulman, in Welch v CSARS, is relevant. The judge said that “one is taxed only if one gratuitously disposes of money or assets in the sense of either the common law or the definition of donation in the Act.” The next issue here is whether the ‘side agreement’ constitutes a disposal of property. The fact that there is reciprocity may also indicate that there is no donation in this instance.
With regard to capital gains the same principles really apply. SARS explains it as follows in their guide:
“Paragraph 67(2)(b) makes the roll-over provisions applicable to spouses who are divorced or separated provided that certain legal formalities are complied with.” Where the type of marriage was a “marriage or customary union recognised under the laws of the RSA”, the “legal formality required for tax-free roll-over” is the “divorce order”. The ‘side agreement’ may well not be in terms of the divorce order, but you may want to obtain a legal view of the matter.