[FAQ] Cancellation Of Tax Directive

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[FAQ] Cancellation Of Tax Directive

• 03 August 2023
• Individuals Tax
• The Tax Faculty Tax Specialist

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

Question:

Can a life insurer deny a request for a change or cancellation of a tax directive?

Factual background:

A client who is a beneficiary of an Estate, requested Old Mutual for a tax directive to be applied for. This directive was approved in respect of payment of the full cash benefit, for the Estate’s Old Mutual Wealth Living Annuity contract, based on the executor’s advice. Initially, the tax directive was done for a withdrawal option and was subject to tax. However, once the client realized there will be tax implications for this directive, they requested that Old Mutual changed the tax directive to reflect a transfer instead (for Living Annuity) to them, and not a withdrawal, as the executor had not mentioned/explained the tax repercussions to the client. Old Mutual, however, do not want to cancel this tax directive or change it to reflect the above without a letter from SARS confirming their change. The client recognizes that the initial tax directive was applied for in accordance with the instructions received, however, it has since been confirmed that the instruction was provided under misrepresentation, and the beneficiary is requesting the option be amended and the directive be reversed. 

Answer:

The core of the problem seems to lie in the advice provided by the executor. If the beneficiary feels that incorrect advice was received, the proper course of action would be to follow the applicable dispute rules. The executor's responsibility is multi-fold, including discharging the deceased's wishes and ensuring that beneficiaries receive what is bequeathed to them, all while meeting statutory obligations. However, it is important to note that an executor isn't automatically authorised to dispense financial or tax advice solely based on their role. Should the will be unclear about the request of, it falls to the legatee to optimize their tax position. If the executor has also served in the capacity of a financial planner or tax practitioner, then the evaluation of their professional obligations becomes crucial. Various controlling bodies can be appealed to if incorrect advice is believed to have been given. The life insurers' reluctance to cancel the directive is understandable, especially if they have already withheld the tax, as this would create an administrative burden for them. In conclusion, it appears that the primary issue is financial planning and tax advice. Any financial losses due to incorrect or inadequate advice should be addressed to the parties who provided that advice to the beneficiary.

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