ARTICLE · 21 FEBRUARY 2012

To Bequeath Or Not

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In the case ITC 1835 the Tax Court in Kimberley deliberated on whether a debt due to a deceased estate had been discharged for no financial consideration and was therefore subject to Capital Gains Tax (CGT) on the full value of the claim in terms of paragraph 12(5) of the Eighth Schedule to the Income Tax Act.

South AfricaTax

Lesley Maman

Without Prejudice December 2011

Intention is the key

In the case ITC 1835 the Tax Court in Kimberley deliberated on whether a debt due to a deceased estate had been discharged for no financial consideration and was therefore subject to Capital Gains Tax (CGT) on the full value of the claim in terms of paragraph 12(5) of the Eighth Schedule to the Income Tax Act.

Paragraph 12(5) was introduced to deal with the situation where a creditor reduces or discharges a debt owed by a debtor to the creditor for no consideration, or for an amount less than the face value amount of the debt. In such instances the debtor is liable for CGT on an amount equal to the relief received. The debtor acquires a claim against the creditor equal to the debt and is deemed to have disposed of the claim for a sum equal to the debt.

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