The taxing of capital gain

Section 9HA of the Income Tax Act deals with deemed disposals by a deceased person. This section of the Act often causes some confusion, especially where there are heirs or legatees other than the surviving spouse. In terms of the provision, a deceased person is treated as having disposed of his or her assets at the date of death, for an amount received or accrued equal to the market value of those assets as at the date of death.This deeming provision does not apply to the following circumstances:

  • Assets of, or for the benefit of the deceased’s surviving spouse.
  • An interest in a resident pension, pension preservation, provident, provident preservation or retirement annuity fund; or a fund, arrangement or instrument outside of South Africa, which provides similar benefits to that in South Africa.
  • In respect of some long-term insurance policies of the deceased.

The position is, however, different if the surviving spouse of the deceased acquires the assets. In this instance, the deceased is deemed to have disposed of the assets at base cost on the date of the deceased’s death. The surviving spouse essentially steps into the deceased’s position.

In the situation where assets are acquired by heirs or legatee’s, assets acquired are treated as though they were disposed of on the day immediately before the deceased’s death, at the market value of those assets. In this instance, any capital gains are to be included in the deceased’s final tax return covering taxes up to date of death.

The consequence is that, if an heir or legatee acquires assets in this manner, the base cost for them is the market value of the assets on the date of death of the deceased.

The practicalities of death are that there are essentially three different taxpayers involved:

  • The deceased person is to file a return covering taxes up until the date of death.
  • Thereafter, the deceased estate is regarded as a “person” for purposes of tax and is required to file a tax return for income earned after death, for each year that the estate is active.
  • Then finally, any heir or legatee is the ultimate beneficial owner of the assets and acquires the assets, and these then form part of such heir or legatee’s estate from the date of distribution to said person.

Executors of estates should, therefore, exercise caution when dealing with the capital gains tax consequences of a person’s death, as the type of heir or legatee could determine the treatment.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Managing your startup capital

Becoming an entrepreneur is not as easy as waking up with an idea and having money thrown at you to turn it into a reality. Most successful entrepreneurs share the same sentiments – it takes many rejections and disappointments, and plenty of restarts. There are two things this article will explore; how to get startup capital, and how to manage it.

1. How to get the startup capital

Your drive to become an entrepreneur should not be derived from wanting to have exactly what another entrepreneur has achieved. By virtue of your business idea being different, an opportunity to succeed already exists. Think carefully and seriously about your creative ideas to assess which ones present the most viable options. When you know what will work, approach investors.

Investors are willing to consider investing startup capital to get your idea into the already competitive market and growing your customer base as quickly as possible. They want to see that their investment is going into the practical ways of making things happen.

2. How to manage it

Now that the capital for your business is available to you, your return on your idea’s marketing budget should now be approximated. Think realistically when it comes to overheads, advertising and personnel as these areas should not be where all your capital goes. The two important things that ensure that you appear more credible are the idea development and the launch thereof.

  • Ensure that you are able to track your expenditure so that your capital does not collapse.
  • Let your startup capital be for business purposes and don’t let personal problems dip into it
  • Learn to use a cloud accounting system to avoid possible accounting errors, and to balance your books

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)