|dc.description.abstract||Death and taxes are unavoidable. In terms of the current legislation both estate duty
and capital gains tax (hereinafter referred to as 'CGT') are levied upon death. The
South African National Treasury is reconsidering taxes on death as estate duty
contributes minuscule revenue, and its administration is cumbersome. Worldwide
taxation is based on either source or residence. Because of the R3 500 000 exemption
from estate duty, only wealthy individuals are generally subject to estate duty. Wealthy
individuals make use of the annual R4 000 000 foreign investment capital allowance
by owning offshore property.
The aim of this study is to document how death taxes are currently levied on an estate
which holds offshore property, given the perception that foreign property is exempt
from death duties, and also to consider the impact on taxes payable on offshore
property at death if estate duty were to be abolished. These objectives cannot be
achieved without a thorough understanding of the development and future of estate
duty, the impact of CGT on death, how selected foreign countries levy taxes upon
death, and how residents of South Africa are taxed on property situated within foreign
countries. When CGT was introduced in 2001 the estate duty rate was reduced and it
is likely that, if estate duty is repealed, the rate of CGT will be increased.
In South Africa, residents are taxed on worldwide income and capital gains. The
international perspective is that the foreign country has the sovereignty to levy taxes
on a person who owns property situated within its boundaries. An estate which holds
offshore property may also be subject to estate duty in terms of the tax law of that
country which results in double taxation in the hands of the deceased estate. South
Africa has concluded international agreements with a number of foreign countries
through double tax agreements and estate tax treaties to prevent double taxation.
In terms of the Estate Duty Act, and in some of the treaties, a rebate is allowed in
respect of foreign estate taxes paid. However, if estate duty is abolished, the
deceased estate may be liable for estate tax in the foreign country where the assets
are situated and the deceased estate may not qualify for any rebate in South Africa in
respect of foreign taxes paid. Hence, the abolition may have detrimental consequences on the liquidity requirements, and on the heirs, in cases where offshore
property is involved. It is vital that proper estate and tax planning advice is given
before a resident acquires offshore property as the tax implications may be enormous.
The current impact of estate duty and CGT on a resident who owns offshore assets is
that the said taxes will be levied either here in South Africa or in the foreign country.
The effect of capital transfer tax on a resident with an offshore asset can never be