Many families assume that tax responsibilities end when a person dies. Death merely shifts those obligations to the executor of the deceased estate. The South African Revenue Service (SARS) requires full compliance before an estate can be wound up and assets distributed to heirs. Failure to meet these requirements can delay finalisation, attract penalties and interest, and prevent the Master of the High Court from discharging the executor.

The first key obligation is the final income tax return covering the period from the start of the tax year up to the date of death. This return must include all income earned by the deceased during that period, salary, interest, dividends, rental income, business profits and any other taxable amounts, together with allowable deductions. It is submitted under the deceased’s existing tax reference number once SARS has coded the taxpayer as deceased.

Under section 9HA of the Income Tax Act 58 of 1962, a person is deemed to have disposed of most assets at market value on the date of death. The deemed disposal triggers capital gains tax, and the resulting capital gain (or loss) is included in the deceased’s final income tax return. An increased annual exclusion of R440 000 applies in the year of death, and assets bequeathed to a resident surviving spouse generally roll over at base cost, deferring the gain. Primary residence relief of up to R3 million may also apply. All income or losses submitted to SARS as part of this final income tax return must strictly tie to the Liquidation and Distribution account.

Any outstanding historical returns from prior years must also be submitted and settled. SARS will not issue clearance until all outstanding income tax, VAT, PAYE, SDL, or UIF returns have been filed and any resulting liabilities have been paid. Accountants and executors should therefore request a full compliance status check early in the administration process.

Income also does not stop accruing on the date of death. Rental income from properties, interest on bank accounts, dividends and other receipts that arise after death belong to the deceased estate. For deaths on or after 1 March 2016, the estate itself becomes a separate taxpayer and must be registered for income tax if it earns taxable income. Separate ITR12 returns are required for each year of assessment from the day after death until the Liquidation and Distribution account becomes final.

Estate duty is a further separate tax obligation. It is levied on the dutiable value of the estate (after allowable deductions and the R3.5 million abatement, which may be increased by any unused portion of a predeceased spouse’s abatement). The rate is 20% on the first R30 million of the dutiable amount and 25% on any excess above R30 million. The executor calculates the duty when preparing the Liquidation and Distribution account and submits the Estate Duty Return to both the Master and SARS.

Only once all returns have been submitted, assessments have been raised, liabilities have been paid, and refunds have been processed will SARS issue the Deceased Estate Compliance (DEC) letter. This letter confirms that the tax affairs of both the deceased and the estate are in order. It must be lodged with the Master before the executor can be discharged and the estate finally wound up.

In short, tax compliance does not die with you. Prompt attention by the executors, supported by professional advice where necessary, protects heirs from unnecessary delays and ensures the orderly transfer of the deceased’s legacy.

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