Davis Tax Committee – the true value of marriage

Doné Howell Doné Howell

The recent report on estate duty from the Davis Tax Committee (DTC) made for interesting reading, not exclusively from a tax law or professional perspective, but rather from a personal and constitutional viewpoint, as for the first time in our tax legislation history, a monetary value is placed on the sacred act of marriage.


For many years, it was expected that Estate Duty will be abolished, especially after the introduction of capital gains tax (CGT). The DTC confirmed in its report that estate duty collections declined over the last two decades, and currently represents only 0.1% of contributions to the national revenue.

However, the report surprised us with the assertion that instead of abolishing this type of tax, it is proposed that higher collection targets are set for estate duty. Naturally, it is the wealthy who will be most affected and forced to continue carrying the heaviest tax burden. But are these changes, affecting a select portion of the population constitutional, and who will most be affected?

The Constitution

The DTC makes it abundantly clear achieving a viable estate duty regime not only requires a change in legislation in both the Estate Duty and Income Tax Acts but also a simplification of the laws, a modification of the collection systems and the upskilling of Revenue officials.

What is refreshing to see, is that the DTC’s considered the Constitution when proposing the legislative changes it found necessary, and the report states, “The constitutional implications must be of paramount importance at all time and cannot be dismissed on the basis of pragmatism alone.”

However, the founding provisions to the Constitution are founded on “values of human dignity, the achievement of equality and the advancement of human rights and freedoms; non-racialism and non-sexism; the supremacy of the constitution and the rule of law and all citizens are equally entitled to the rights, privileges and benefits of citizenship…,” and importantly, “all citizens are equally subject to the duties and responsibilities of citizenship.”

One is further reminded that the Bill of Rights, found in Chapter 2 of the Constitution, “is a cornerstone of democracy in South Africa. It enshrines the rights of all people in our country and affirms the democratic values of human dignity, equality and freedom.” The Chapter further asserts,  “the state may not unfairly discriminate directly or indirectly against anyone on one or more grounds, including race, gender, sex, pregnancy, marital status, ethnic or social origin, colour, sexual orientation, age, disability, religion, conscience, belief, culture, language and birth.”

Current legislation 

Why then is the emphasis on marital status? The answer is that married couples are seemingly favoured in South African tax law.

A spouse, for purposes of the Income Tax Act, is a partner of a person in a marriage or a customary union as recognised in terms of SA law, or a union as recognised in terms of the tenets of any religion, or a permanent same-sex or heterosexual union. For purposes of this discussion, we refer to all of these unions as ‘married couples’.

The tax benefits afforded to married couples have been diminishing and are now restricted to capital gains, donations’ tax and estate duty, albeit that the benefits are significant, namely:

- exemption of the 20% donations’ tax payable on any donation to, or for the benefit of a spouse;

- permission to deduct the value of all property left to the surviving spouse from the dutiable estate, i.e. bequests in favour of a surviving spouse are exempt from the 20% estate duty;

- transfers of assets between spouses will not result in a capital gain, a saving at maximum effective rate of 13.65%.

DTC recommendations

The DTC in trying to achieve the impossible, of finding legislative changes to enhance tax collections and being constitutionally mindful about it, recommended the following (note only recommendations relevant to this topic are included. Refer to the July e-taxline alert for the full list of recommendations:

Donations’ tax: inter-spouse donations’ tax exemption should be retained, but must in future exclude interests in fixed property or companies where the married couple are not duly registered under ante- or post-nuptial contract.

Estate Duty: inter-spousal bequest exemptions and roll-overs should be withdrawn or be subject to a specific limit.

Estate Duty: an increase in primary abatement of estate duty, which is effectively the tax-free limit of an estate, be increased from R3.5m to R6m per taxpayer. The abatement, which has not changed in seven years, increases the threshold for married couples R7m to R12m while for the single person the total abatement is still only R6m.

The Singleton’s Burden

Notwithstanding the DTC’s aims to be constitutionally fair, the recommendations appear to be discriminating against the unmarried. The reality is that life and society’s views have changed over the last number of years. People are choosing not to get married and the taboos surrounding this choice or single parenthood have fallen away.

However, an unmarried person’s obligations of financial support are not necessarily less than that of a married couple and most are financially supporting ‘someone’ – the difference being merely in name, e.g. as spouse versus parent, child versus child, child versus sibling.

That rules governing donations or bequests for married couples to ensure financial support to the surviving spouse and children are not mirrored for single persons supporting their children, parents, siblings and extended families dependant on them.

Perhaps this sector of society is vocal and will debate the constitutionally of the R6m versus R12m abatement and perhaps a solution is to change the provisions of the legislation regulating donations tax and estate duty benefits should change from benefiting spouses to a more ‘financial dependants’. 

If this constitutional right is not enforced then the value one can place on a marriage union indeed adds up to R12m, is it not?

But before anyone rushes out to tie the knot for the implied tax benefits, let’s wait for the DTC to reconsider their recommendations and have faith in the DTC’s concluding consideration that states, “in short, all that may be required to achieve a simpler and fairer system is to treat all taxpayers equally, regardless of marital status.”

By Doné Howell, Tax Partner Grant Thornton Johannesburg

This article was published in e-taxline: Landlords can grow rich in their sleep.