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:
This article is a general information sheet and should not be used or relied on as 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.