Taxation Laws Amendment

In my article in SADJ Issue No. 16, November 2008, page 2 Section 45(1) Act 47 of 1937 on Redistributions and Massing: Transfer Duty Implications, I exposed the tip of the iceberg as far as questionable utilisation of Section 45(1) and questionable exemption from transfer duty are concerned, as is clearly discernible against the backdrop of the Taxation Laws Amendment Act 69 of 1989. Accordingly this is a follow-up article in view of a request for some clarity on the issue.

A and B are married in community of property to each other and have a child. They make a joint will, massing their joint estate in favour of their child and have adiated accordingly.

B dies and the massed estate accordingly vests in the child. Originally, the child would be totally exempt from transfer duty in terms of section 9(1)(e)(1) of the Transfer Duty Act 40 of 1949.

However, in terms of section 1(1) of the Taxation Laws Amendment Act 69 of 1989, exemption from transfer duty in respect of heirs and legatees is only restricted to property of the deceased.

The impact of the foregoing legislation, given the above scenario, is that the child will only be exempted from transfer duty in respect of the acquisition of B's share, while he/she will still have to pay transfer in respect of the acquisition of A's share. The said act commenced on 21 June 1989.

Another aspect that the previous article sought to unravel was the surviving spouse avoiding transfer duty under the guise of massing and redistribution as seen against the backdrop of section 1(1) Act 69 of 1989.

Consider the following scenario:

A and B are married in community of property to each other and have six children. They make a joint will massing their estate in favour of their children, to which they accordingly adiate.

B dies and accordingly the massed estate vests in their children. However, the surviving spouse A enters into a redistribution agreement with the children in terms of which he/she reacquires the whole estate subject to an award of a substantial amount of money to the estate.

Considering the fact that this reacquisition is from the six children and obviously not directly from the deceased the surviving spouse A is not exempt from transfer duty. It is actually a foregone conclusion that transfer of the property can only be effected by means of a formal deed of transfer and not by a section 45(1)application.

Emphasis is hereby placed on the fact that the basis of a section 45(1)application is a direct acquisition by a surviving spouse of the share of a deceased spouse in a joint estate, which as one can clearly see is not the case in the given scenario.

Finally, the previous article sought to analyse the foregoing aspects against common law massing acquisitions. Towards that end the following scenario must be considered:

A and B are married to each other in community of property and have three children. They make a joint will massing their estates for the benefit of their children, to which they accordingly adiate. B dies and accordingly the estate vests in the children. However, A has not acquired any limited interest in likes of a usufruct or annuity with the result that common law massing takes place. According to the said type of massing he/she acquires the estate.

Once again it goes without saying that since this acquisition is not directly from the deceased but from the children, the surviving spouse is not exempt from transfer duty (Section 1(1) Taxation Laws Amendment Act 69 of 1989). Accordingly he/she pays full transfer duty.

Furthermore, it is as obvious as night follows day that the section 45(1)application procedure cannot be utilised here but a formal deed of transfer. It may come as a surprise, especially with regard to the latter scenario, that so many section 45(1)applications have been lodged for registration.

Wiseman Bhuqa
Deeds Training
Pretoria

It is trusted that the above has provided more clarity on the issue. - Editor
Republished with permission from SA Deeds Journal