CGT Roll-Over

CGT Roll-Over

• 15 November 2023
• Accounting
• The Tax Faculty Tax Specialist

This FAQ article is based on tax law for the year ending 29 February 2024.

1. Background

The deceased, now referred to as an "Estate Late", left their property to their surviving spouse. If the surviving spouse is the sole inheritor, certain tax rules could allow them to roll over the property without immediate taxes, but there are exceptions involving Capital Gains Tax (CGT). If the surviving spouse is a non-resident or if the property inherited by the spouse is sold separately from the estate, the tax rollover might not apply, leading to CGT implications. Both the executor and the estate would need to handle and report the CGT implications if the property is sold outside the estate. The property was sold by the estate and the surviving spouse after the individual passed away. Should the CGT calculations from the property sale be excluded from the deceased's pre-death tax return, or should they be included because the estate and spouse made the sale?

2. The Problem / Facts

Facts:

A deceased individual bequeathed a property to their surviving spouse. The surviving spouse is the only heir/beneficiary of the property. Based on the final transferor statement the spouse & estate sold the property after death.

Problem:

1. What are the CGT implications for the deceased’s income tax calculation pre-death (up to the date of death)? 

2. Does the rollover exclusion apply if the surviving spouse is a non-resident?

3. Does the rollover exclusion apply if the property that is bequeathed to the spouse, is sold out of the estate?

3. Applicable Law 

Income Tax Act 58 of 1962, 

Paragraph 40(1) of the Eighth Schedule

Section 9HA, 9HB, 25, 26A of the Act

4. Application of the Law to the Facts

In terms of paragraph 40(1) of the Eighth Schedule to the Income Tax Act, 1962, a deceased person (for the period until date of death) is treated as having disposed of his assets at market value to his estate as at date of death. Death itself is deemed as a CGT disposal of assets and thus in the deceased’s final tax return this deemed disposal of CGT related assets would have to be reflected. The difference in value between the base cost of the assets and the market value thereof at date of death is regarded as a capital gain/loss which must be reflected in the income tax return (IT12) of the deceased as at date of death. 

The exception to the rule in this particular instance is if the asset subject to CGT is bequeathed to a resident surviving spouse. Should this be the case then there is a rollover of the capital gain to the estate of the surviving spouse and thus the deemed disposal falls away, with the surviving spouse taking the asset over at the base cost at which the deceased obtained it (and not at the date of death value of the deceased). Note that this rollover does not apply to a non-resident surviving spouse. It would also not be applicable if the CGT related asset bequeathed to the spouse is sold out of/by the estate (in which case the calculations related to both the deemed and actual disposals would have to be calculated and declared by the executor).

5. Conclusion  

Where an asset subject to CGT is bequeathed to a resident surviving spouse, there is a rollover of the capital gain to the estate of the surviving spouse and the deemed disposal of the deceased for the period up to the date of death falls away. The rollover does not apply to a non-resident surviving spouse. The rollover will also not be applicable if the CGT related asset bequeathed to the spouse is sold out of/by the estate.

Join Carmen Westermeyer for her upcoming webinar about Turnover Tax and learn all about the who, what and how.

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