The date of death in an estate is extremely important. Assets that are allocated must be valued as at the date of death. Creditors' claims must reflect the balances outstanding as at the date of death.
Income and permissible after-death interest on claims, and expenditure on assets after the date of death are classified as income and expenditure respectively and are not taken into account in the calculation of estate duty. Permissible funeral and tombstone costs, administration costs and claims from creditors as at the date of death qualify as liabilities.
Assets realised during the administration period are reflected at the gross realised value, and the cost of realising such assets is reflected under liabilities. Income tax, capital gains tax (CGT) and VAT are also calculated as at the date of death. If some of the assets are disposed of/sold during the administration period, CGT and VAT are also calculated on such assets and assessed in the name of the estate.
If, for example, a wheat farmer in the Western Cape operating as a sole proprietor dies on 15 September, it could have negative tax implications for the heir or usufructuary of the farm. Up to the date of death the farmer had incurred virtually the maximum input costs, which would be deductible from the crop.
The crop harvested a few weeks later would be taxable in the hands of the heir or usufructuary, who would be able to deduct far fewer expenses incurred after the date of death up to the end of the tax year (28 February). If an average crop is produced, the new taxpayer could be assessed heavily, with possibly no transferable loss that could be deducted.
A method that is recommended is to obtain a separate sworn valuation of the unharvested crops from an assessor as soon as possible. The assessor also has to value the farm property with standing crops for estate and estate duty purposes. Such separate valuation is then reflected as the gross crop in the deceased's final tax return. The difference between the actual gross yield and the crop valuation will then be taxable in the hands of the heir or usufructuary.
Another example is a general dealer operating as a sole proprietor. Prior to his date of death he made large stock purchases that could be recovered from his gross sales. The heir in whose hands the sales would be taxable after the date of death, would probably be able to recover fewer new purchases and expenses if the tax year ended shortly thereafter.
Expert advice and assistance are required to effect tax relief.
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