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    Seed Weekly - Is this the end of the world as we know it?

    As many of you will know, I have been a financial planner for more than 20 years and in those 20 years there were certain foundation assumptions that were made with regards to Estate Planning. As my old Tax Professor used to say “Paying no Estate Duty is easy, you just give your entire Estate to the Church”. It should be noted however that the essence of Estate Planning has always been paying the least possible estate duty within the framework of your wishes. Now with Davis Tax Committee second interim report and the publication of the Taxation Laws Amendment Bill (Second Draft), it would appear that many of the mechanisms which we used to use for Estate Planning are now in danger. It must be noted however that these are proposals and they could therefore change before they are finally implemented in the Income Tax Act.

    The two most interesting aspects of the Davis Commission are as follows:


    Scraping Inter-spouse Abatement

    The Section 4Q abatement has been the backbone of Estate Planning for many years and the scrapping of this abatement along with the CGT exemption and Donations Tax exemption between spouses could cause huge liquidity problems in many estates going forward. Davis has however softened this blow by proposing an increase in the Primary Estate Duty Abatement to R 15 000 000.00 per tax payer. Davis is also proposing to increase the rate of Estate Duty to 25%.

    Taxation of all income and Capital Gaines within the Trust

    A number of Tax Planners misused the conduit principle vesting Income and Capital Gains in the hands of beneficiaries. Whilst the tax advantages of the practice are obvious, it does however undermine the actual purpose of why the trust was created (By vesting the capital in a beneficiary you lose the protection of the trust).
    The Taxation Laws Amendment Bill (Second draft 23 September 2016) also brings two interesting changes to our post retirement and estate planning landscape:

    Section 7C

    The use of interest free loans has long been a mainstay of our Estate Planning Landscape; it has allowed a person to transfer an asset to a Trust without incurring donations tax and without placing an undue burden on the finances of the Trust. Now whilst the amendments are rather complex and you definitely need to discuss them with your tax planner and probably your financial advisor, in a nutshell there will be an annual donation on any interest free/ low interest loans.

    Disallowing the offshore exemption on an annuity from a local Retirement Fund

    A number of people who were employed by multinationals and up until now have received exemptions on pensions for the time they spent working offshore, will now find that that exemption will no longer be in place.

    Please remember that these are proposals but you would ignore them at your peril. One needs to assess how these changes will impact your financial planning and start putting contingency plans in place.

    Kind regards,

    Barry Hugo

    Tel +27 21 914 4966
    Fax +27 21 914 4912
    Email info@seedinvestments.co.za

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    Permalink2016-10-26, 11:01:33, by Mike Email , Leave a comment
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