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Tax & Deceased Estate
- 15 November 2023
- Accounting & Financial Reporting
- The Tax Faculty Tax Specialist
This FAQ article is based on tax law for the year ending 29 February 2024.
1. Background
Understanding what the steps are involved in finalising a deceased estate is crucial. In recent cases, the Estate duty department of SARS completed audits such as Estate Duty (ED), Capital Gains Tax (CGT), and more. The process starts where a Deceased Estate Clearance (DEC) certificate is issued through the contact center. Typically, we anticipate this DEC certificate within a few weeks. However, there are significant challenges in obtaining it from SARS.
With this in mind, one can not help but ask: What steps does SARS follow before issuing a Deceased Estate Clearance (DEC) certificate? Does this involve conducting a new audit, or is it primarily a validation process ensuring the completion of tax returns, submission, debt settlement, and compliance? Moreover, what factors contribute to the extensive waiting period in obtaining a DEC?
2. The Problem / Facts
What steps does SARS take to finalise a deceased estate before issuing a Deceased Estate Clearance (DEC) certificate? Additionally, does SARS conduct a secondary audit, and what causes the significant delay in issuing the DEC certificate?
3. Application of the Law to the Facts
The SARS website and the Department of Justice provide guidance regarding the process of winding up an estate. You can refer to the Administration-of-Deceased-Estates-SARS-2022.pdf guide as well as https://ow.ly/y8hu50Q7lt7 or look at the resources on the Tax Faculty page as well as the various webinars about Deceased Estates for more detailed information.
Various factors can delay the process of receiving a DEC certificate. Even though a final income tax assessment for an estate may have been received and paid, the estate’s tax affairs can only be considered to have been finalised once a final tax clearance has been issued by SARS. Although it is not always the case, it is common for SARS to do an audit and the tax clearance will not be issued until the audit has been completed in such a case. SARS can sometimes take months before issuing a tax clearance and it is not uncommon for SARS to make further claims on the estate. This can delay a final distribution.
Once all the tax liabilities have been paid in full and the Deceased Estate Compliance certificate has been issued, it is submitted to the Master.
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FAQs
1. What is a deceased estate for tax purposes in South Africa?
A deceased estate is a temporary tax entity created when a person dies and exists until the estate is fully wound up and assets are distributed to heirs.
2. Does SARS require a tax return to be filed when someone dies?
Yes. A final income tax return must be submitted for the period from the start of the tax year to the date of death, and additional returns may be required while the estate is administered.
3. Who is responsible for handling the tax matters of a deceased estate?
The executor of the estate is legally responsible for managing all tax affairs, including registrations, submissions, and payments to SARS.
4. Must a deceased estate be registered separately with SARS?
Yes. A deceased estate must be registered as a separate taxpayer with SARS, usually under an estate income tax reference number.
5. Is income earned after death taxable?
Yes. Any income earned by the estate after the date of death, such as rental income or interest, is taxable in the deceased estate until assets are distributed.
6. Are capital gains tax (CGT) implications triggered on death?
Yes. Death is treated as a deemed disposal of assets for CGT purposes, subject to exclusions and abatements available to deceased persons.
7. Do beneficiaries pay tax on amounts received from a deceased estate?
It depends. Income distributed to beneficiaries may be taxed in their hands, while capital amounts are generally not taxable, subject to specific rules.
8. Can a deceased estate claim deductions and rebates?
Yes. The estate may claim allowable deductions and may also qualify for certain rebates, depending on the nature of the income and expenses.
9. What happens if the executor fails to comply with SARS requirements?
Non-compliance can result in penalties, interest, delays in finalising the estate, and personal liability for the executor in certain circumstances.
10. Why is professional tax advice important when dealing with a deceased estate?
Deceased estates involve complex tax rules, including income tax, CGT, and estate duty, making professional guidance essential to ensure compliance and avoid costly errors.