This article is based on tax law for the year ending 29 February 2026.

Question: 

An investment under section 12J of the Income Tax Act was made on 31 June 2021 but was not specifically mentioned in the deceased’s will. The deceased passed away on 16 December 2023, prior to holding the investment for the required three-year period. In terms of the will, R3.5 million was bequeathed to a family trust, with the remainder of the estate bequeathed to the surviving spouse. This raises the question of whether the South African Revenue Service (SARS) will treat the recoupment of the section 12J investment as part of the deceased's final tax return, and whether rollover relief in terms of section 4q of the Estate Duty Act and section 9HA(2) of the Income Tax Act would apply.

Answer:

The Problem / Facts

An investment under section 12J of the Income Tax Act was made on 31 June 2021 but was not specifically mentioned in the deceased’s will. The deceased passed away on 16 December 2023, prior to holding the investment for the required three-year period. In terms of the will, R3.5 million was bequeathed to a family trust, with the remainder of the estate bequeathed to the surviving spouse. This raises the question of whether the South African Revenue Service (SARS) will treat the recoupment of the section 12J investment as part of the deceased's final tax return, and whether rollover relief in terms of section 4q of the Estate Duty Act and section 9HA(2) of the Income Tax Act would apply.

Analysis of the Tax Issues Identified

The tax issues identified are as follows:

  • Whether SARS will treat the recoupment of the section 12J investment as part of the deceased’s final tax return.
  • Whether rollover relief under section 4q of the Estate Duty Act applies to the recoupment.
  • Whether rollover relief under section 9HA(2) of the Income Tax Act applies to the recoupment.
  • How the disposal of the investment by the surviving spouse in future will be treated.

List of Tax Issues with Applicable Sections of Legislation

  • Rollover relief under the Estate Duty Act: section 4q of the Estate Duty Act.
  • Rollover relief under the Income Tax Act: section 9HA(2) of the Income Tax Act.
  • Disposal of investment by the surviving spouse: section 9HA(2) of the Income Tax Act.

Application of the Law to the Facts

Based on the facts, it is likely that SARS will treat the recoupment of the section 12J investment as qualifying for rollover relief, as the investment was acquired by the spouse through testamentary succession in accordance with section 4q of the Estate Duty Act.

Rollover relief under section 9HA(2) of the Income Tax Act may also apply to the recoupment, given that the investment was bequeathed to a resident surviving spouse through testamentary succession.

When the surviving spouse disposes of the investment in future, the base cost of the investment will be the original cost price.

Conclusion:

The tax implications of the section 12J investment for the deceased’s estate and surviving spouse are complex and depend on the specific circumstances. It is necessary to review the will in order to determine how the section 12J investment was transferred to the spouse.

Frequently asked questions

Why does death before the three-year hold matter for section 12J?

Dying before completing the required holding period raises whether the section 12J deduction is recouped in the deceased final return.

Can rollover relief apply to a surviving spouse?

The article suggests rollover under Estate Duty Act section 4q and Income Tax Act section 9HA(2) may apply where the investment passes to a resident surviving spouse by testamentary succession.

What base cost does the surviving spouse take?

On the article analysis, when the spouse later disposes of the investment the base cost is the original cost price.

Why must the will be reviewed carefully?

Treatment depends on how the section 12J investment actually passed under the will (spouse versus other legatees such as a trust).