TAX3703 EXAM PACK .

TAX3703 EXAM PACK. TAX3703 - Taxation Of Estates. Four Estate planning objectives that want to achieve i) To achieve efficient deceased estate administration of the estate ( both during penny’s lifetime and after her death and safe guarding of documentation ii) To appoint heirs and legatees and distribute assets as the Penny wishes - The estate plan should provide for the disposition of the planners assets to her chosen heirs and beneficiaries Iii) To provide for liquidity - To avoid liquidity problems of the death of Penny iv) To minimise the impact of taxation on the estate - Suitable planning could help minimise the impact of tax n including estate duty, CGT, income tax donations tax, VAT and transfer duty. 4.2 Most important estate planning tool that penny should utilise - The last will and testament is the most important tool that Penny should utilise - This is review and update on regular basis - This will meet Penny’s objective reducing estate duty liability, providing for dependants and achieving efficient administration of deceased estate 4.3.1 How Penny should structure the trust with regard to trustees and beneficiaries - As the beneficiaries her children are still minors, a discretionary trust is more suitable - This gives the trustees discretionary powers regarding the way in which and the time at which income or capital of the trust should be allocated to the beneficiaries 4.3.2 Advantages of inter- vivos trust and transferring the fixed property - Protection of minor beneficiaries - Protection against creditors Disadvantages - The cost of transferring assets could be expensive - The duties of trustees are extremely ???? - A trust deed cannot exempt trustees from personal liability if such person does not act within the required degree degree of - The founder of the trust has to give up control of trust assets for it to be truly effective Question 2 - Executor’s account in the estate of ofcristoRouvla Asset s Immovable property – reduced to cash - House @ stlouis 11 50 000 - Holiday home 695 000 - Motor Vehicle 195 000 - Utility vehicle Claims in favour of estate 120 000 - Art Collection 695 000 - Fixed deposit 825 000 - Cash 55 200 - Interest 2650 Total assets Administrative costs 3542 850 - Advertisement ( 555) - Hospital cost (25 000) - Funeral cost (16 234) - Credit card account (2950) - Other liabilities Balance Available (10 580) 3 487 531 Question 2 continuation Recapitulation statement - Cash available for distribution 3 487 531 Less: cash legacy: surviving spouse ( 825 000 + 55200 + 2650 ) (882 850) Distribution account - Total amount available for distribute according to liquidation account 3487 531 Awarded as follows: 1. Surviving spouse – ½ of the estate. (in community) Available for distribution • ½ consisting of cash ( / 2 ) 1743 766 • House 1150 000 • Fixed deposits • Cash 825 000 • Interest 55 200 2650 2. Holiday house: Elena 695 000 3. Motor vehicle: Shante 195 000 4. Art Collection: Shante 500 000 5. Utility Vehicle 120 000 Income and expenditure account - Interest 2650 Less expense - Executer’s remuneration (6%) (159) 2491 Tax 3703 OCT/NOV 2014 Question 1 – Complete Executors Account Liquidation Account Assets 1. lmmovable property not reduced to cash -usufruct (3300 000 x 12% x 6.32818) 2505 959 -Annuity (5000x12x25.38) 1522 800 -Property 850 000 -Listed Shares - -Personal Assets 380 000 Property – Redused to cash -Listed Shares 2700 000 -Fixed Deposit 500 000 8458 759 Liabilities -Bank overdraft (15 000) Balance available for distribution 8443 759 Recapitulation Statement -cash and assets redused to cash (2700+500) 3200 000 Less: Total Liabilities (15000) Less : Cash legacy (100 000) Cash Available for Distribution 3085 000 Continuation of questions one Distribution Account - Amount available for distribution as per liquidation = 8443 759 Distributed as follows: 1. Bare dominium ( Jonal Samuels) (3300 000 – 2505 959) = 794 041 2. Annuity = 3. Cash angel = 100 000 4. Residual – Joe Salomon Income and expenditure Account Income 1. Rent = 8000 Expenditure 2. Deposit = (3000) 3. Executors Remuneration (6%x 8000) = (480) Balance available for distribution = 4520 = 602 6918 = Estate duty addendum - Total assets as per liquidation account = 8458 759 Less liabilities before estate duty = (15 000) = 8443 759 Amount left for surviving spouse = (6026 918) Net estate = 2416 841 Rebate = () NIL Taxable amount @ 20% NIL Question 2 Part A Donations Tax payable by Abel on each of the donations 1) Annuity to his sister - No donations tax payable - Sister is battling financially - So donation is made towards maintenance of his sister Gina 2) Cash to his Daughter 500 000 Exemption (100 000) 400 000 Donations 20% x 400 000 = 80 000 2) Motor vehicle 495 000 Exemption – already used up - 495 000 Donations 20% x 495 000 = 99 000 3) Cash amount to Sylvia = 1200 000 Exemption – it is for the benefit of the donor (1200 000) 4) Debt owed = 20 000 5) Exemption – casual – used up - 6) Donations tax 20% x 20 000 = 4000 7) Housekeeper = 25 000 Donations tax (20% 25 000) = 5000 Part B Estate duty payable in Abel Goddy’ s estate Property - Residence in Pretoria 6 300 000 - Apartment in London 4 000 000 - Johannesburg flat 120 000 - Holiday home 2500 000 - Motor Vehicle 1885 000 - Life policy 560 000 - Shares in private company - Fixed deposit Gross Value Deductions - Apartment in London – purchased before he became residence (4000 000) - Death duties – excluded as the London apartment is not included in property - Flat in Johannesburg – spouse (1200 000) - Life policy bequeathed to spouse ( 560 000) - Funeral Expenses ( 15000) - Valuation fees ( 2000) - Income tax ( 12000) - Masters fees ( 600) - Executors remuneration (3,5 % ) ( 654 675) - Bank overdraft Abatement (3500 000) Estate duty =20% x = Question 3 Part A Possible problems in regard to the validity of the will and the bequest of R5million to his children ( 4000) - The testator himself did not sign the will - The testator should sign in the presence of at least 2 competent witnesses - It is 2 children are only minors who are not considered to competent enough Bequeath of the R5 million cash - This might attract donations tax because the tw0 children are minors - The donor (Mr lucky is still alive - Mr Lucky will have to pay donations tax on the R5million and the R5million is deemed to have accrued to him Part B Estate planning tools 1) The last will and testament - It reduces estate duty liability, providing for dependants and achieving efficient administration of the deceased estate - The will be relevant wen planner is considering bequeathing formula and to more than one beneficiaries - If the will is carefully structured and written, it can meet many achieving efficient administration 2) Use of trust - A trust will serve the following functions - protect assets, while retaining control - Acts as significant shelter against future estate duties - The following trust may be used - inter-vivos - Testamentary - Discretionary 3) The use of companies - Achieved by transferring assets to a company - Spouse and children are the shareholders - An increase in the value of the assets will for the benefit of the shareholders and will not increase the net value of the state of the planner 4) Donations assets - Assets donated will fall outside his / her estate - Therefore there will be a reduction in estate duty payable 5) Use of deductions permitted by section 4 of the Estate duty act i) Request for surviving spouse ii) Request to PBOS iii) Books and work of art lent to estate 3) QUESTION 3 : Part C Taxable Capital Gains/ Losses for the Deceased Mrs Lucy Lucky Beauty Saloon Business Proceeds 1100 000 Base cost () 300 000 Small Business Exemption 1800 000 Limited to 300 000 (300 000) - Primary Residence in Pretoria -Capital Gains/ Loss is disregarded -Surviving spause deemed to acquire residence at the same base cost as Lucy Bachelor flat in Pretoria Proceeds 600 000 Base cost (450 000) Capital Gain 150 000 Fractioned Ownership in a Game lodge Proceeds 700 000 Base cost (400 000) Capital Gain 300 000 Cash - Not an Asset in Eighth Schedule Total Capital gain = 150 000 + 300 000 = 450 000 Annual Exclusion (300 000) Net Capial gain 150 000 Taxable Capital Gains 33.3% x150 000= 49950