Paragraph 12(5) of the Eighth Schedule to the Income Tax Act was scrapped on 1 January 2013 and replaced with a new paragraph 12(A) which, in certain circumstances, provides relief on the payment of capital gains tax when debt is written off.
These new provisions came into effect on 1 March 2013.
In terms of these changes capital gains tax is still payable when a debt of a debtor is reduced or written off, but that there are two exceptions:
The relevant amendments to the law therefore determine in essence that:
The latter provision is especially to be welcomed considering the problems that have occurred in the past with the wording of wills in cases where heirs or a family trust owe a loan debt to a testator. It is now again possible to merely bequeath a loan account between a legator and a trust as a legacy to the trust, which amounts essentially to the reduction of a debt obligation of the trust.
In view of these recent changes to the Income Tax Act we once again encourage clients to make a donation in order to ensure a saving in estate duty in the longer term.
To make the most of the benefits of a donation the following should be borne in mind:
For further information in this regard or for assistance with making a donation, please get in touch with Sonja Viljoen (firstname.lastname@example.org) at our office.