Mores, fault and fides: are these acceptable criteria when income tax deductions are claimed
- Authors: Swanepoel, Marius G
- Date: 2007
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:889 , http://hdl.handle.net/10962/d1001643
- Description: The two “pillars” on which taxable income is based are the definition of “gross income” in section 1 of the Income Tax Act, 58 of 1962, and the “general deduction formula” comprising the preamble to section 11, section 11(a) and section 23(g) of the Act. Many of the terms used in these sections are not defined in the Income Tax Act. Case law in relation to these sections reveals that morality issues, the negligence of taxpayers and the good faith of taxpayers have from time to time been treated as relevant considerations by the courts, both abroad and in South Africa, in allowing or disallowing deductions from the gross income of taxpayers. In some instances this occurred apparently unwittingly. In other instances, earlier decisions were followed without a thorough consideration of the correctness of the underlying reasoning or of the criteria which were applied in the earlier decisions. In relation to the definition of “gross income”, however, fides, mores and fault have not been a consideration. In CIR v Delagoa Bay Cigarette Co Ltd 1918 TPD 391 Bristowe, J stated: “I do not think it is material for the purpose of this case whether the business carried on by the company is legal or illegal.” There were a number of cases heard in relation to income from illegal activities (for example, COT v G, 1981 (4) SA 167 (ZA), 43 SATC 159, and ITC 291, 7 SATC 335, which related to the misappropriation of funds, ITC 1545, 54 SATC 464, which dealt with the proceeds of the sale of stolen diamonds and ITC 1624, 59 SATC 373, which dealt with overcharging customers). In these cases, the question turned on whether or not the amounts were received by the taxpayers for their own benefit and therefore to be included in gross income, or whether the taxpayers incurred a concomitant liability to repay the amounts, and did not involve the question of fides, mores or fault. The research concludes that, providing an even-handed approach is applied to both income and expense considerations, fides and mores may continue to play a role as a useful yardstick in this context. However, that fault, particularly the causal negligence of taxpayers in the process of sustaining a loss or incurring expenditure whilst conducting their income generating operations, has effectively been jettisoned as an irrelevant consideration, is a salutary development which has contributed to legal certainty.
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- Date Issued: 2007
The continued viability of the discretionary Inter vivos trust as an instrument for estate planning
- Authors: Lötter, Therésilda Sieglinde
- Date: 2007
- Subjects: Taxation -- Law and legislation -- South Africa , Trusts and trustees -- South Africa , Trusts and trustees -- Taxation -- South Africa , Estate planning -- South Africa , Estates (Law) -- South Africa
- Language: Afrikaans
- Type: Thesis , Masters , MCom
- Identifier: vital:900 , http://hdl.handle.net/10962/d1006148 , Taxation -- Law and legislation -- South Africa , Trusts and trustees -- South Africa , Trusts and trustees -- Taxation -- South Africa , Estate planning -- South Africa , Estates (Law) -- South Africa
- Description: The purpose of this study is to determine whether a discretionary inter vivos trust is still an effective instrument for estate planning. The process of estate planning, the role the trust plays in it and the background to the trust are described. The taxability and tax saving opportunities when the trust are utilised are discussed in the light of the Estate Duty Act, 45 of 1955, the Income Tax Act, 58 of 1962 (including the Eighth Schedule thereof) and the Transfer Duty Act, 40 of 1949. The opinions of tax and legal authorities in articles and relevant case law are also discussed. The impact of the "letter of wishes" on the stipulations of the trust deed is examined. Amendments to the Income Tax Act have placed a limit on the use of a trust for estate planning through a number of anti-avoidance measures, the introduction of a capital gains tax (in the Eighth Schedule) and the imposition of a high tax rate. The increase in the deduction granted in arriving at the dutiable amount of an estate, in terms of section 4A of the Estate Duty Act, from R1 500 000 to R2 500 000 has imposed a further limit on the use of the trust as an instrument in estate planning. The research demonstrates that, notwithstanding the amendments to the Income Tax Act, the trust still is a viable instrument, mainly because the trust operates as a conduit and because of its potential use in dividing taxable income amongst a number of beneficiaries. The stipulations included in the trust deed and the "letter of wishes" (if one exists), must be thought through carefully when estate planning is done, as it can give rise to the application of the general and specific anti-avoidance provisions as included in sections 7 and 103 of this Act. The research also concludes that, in assessing the effectiveness of the trust as an instrument in tax planning, the disadvantage of paying the higher transfer duty when the immovable asset is transferred to the trust should be weighed up against the possible saving in income tax and estate duty at a later stage. It is also clear that most assets owned by the trust are tax neutral, whilst many of the amendments under discussion deal with the taxability of trust income. The quantitative considerations underlying the use of the trust as part of the estate plan, remain unchanged. The research concludes by providing a framework of quantitative and qualitative criteria that can be used by an estate planner to determine whether it will be advantageous to transfer an asset to the trust to achieve the objectives of the estate plan.
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- Date Issued: 2007