An argument for either excluding death as a capital gains tax event or abolishing estate duty

Abstract

South Africa is one of the few countries in the world that imposes both estate duty and capital gains tax on the assets of a person on death. This paper presents an argument for the abolishment of estate duty in South Africa or, in the alternative, making the act of dying a non-taxable event for capital gains tax purposes. While certain political considerations may play a role, this paper also demonstrates, by referring to the recommendations of previous commissions of inquiry into the tax system of South Africa, that the imposition of both capital gains tax and estate duty on death currently has no basis as this was never a policy decision and not recommended by previous commissions. Estate Duty has existed from 1955 and since then the basis of taxation in South Africa changed from source to residence and in 2001 capital gains tax was introduced. The paper also demonstrates, by way of an example, what the impact is of levying the two forms of taxation simultaneously on the death of a person. In order to remove one of these taxes levied on the death of a taxpayer, certain sections of the Income Tax Act would have to be revised and are highlighted in the paper or, in the alternative, the Estate Duty Act would have to be repealed. A brief insight into what taxes are imposed by certain foreign jurisdictions on death is also provided in order to further substantiate the recommendation to abolish one of the two taxes on the death of a person.