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Taxation Laws Amendment – reply

20 August 2009

This article is compelled, in particular, by the silence, in Taxation Laws Amendment ("the article"), on the application of section 37 of the Administration of Estates Act, 1965 (Act No. 66 of 1965), as amended, ("the AOEA"), to massing, in the light of my submission, in Redistribution and massing - reply, which submission is to the effect that a labelling of massing as common law massing cannot exclude the application of section 37 of the AOEA. For authoritative sources in this regard, refer to paragraph 366 of the First Issue of Volume 1 of "The Law of South Africa", published by Butterworths, paragraph A51.2 of "Wills and Trusts" by R P Page and W M van der Westhuizen, published by Lexis Nexis and Rampathy v Krumm N O and Others 1978 (4) SA 935 (D) at 939-940.

If section 37 of the AOEA is applied to the scenario depicted in the first part of the article, upon the death of B, adiation by A has the effect of conferring upon the child, in whose favour the disposition of the massed estate was made, such rights in respect of any property forming part of the share of A of the massed estate as the child would by law have possessed under the will if that property had belonged to B. A consequence of this equation of A's share to B's share is that the child's acquisition of each such share is simultaneously exempt from transfer duty in terms of section 9 (1) (e) (i) of the Transfer Duty Act, 1949 (Act No. 40 of 1949), (the TDA"), as amended by section 1 (1) of the Taxation Laws Amendment Act, 1989 (Act No. 69 of 1989).

With reference to the discussion following the second scenario depicted in the article, I submit, first, that section 9 (1) (e) (i) of the TDA refers to the acquisition of the "property of the deceased" by "an heir or legatee". There is no requirement, and it is not essential, that the acquisition be direct or indirect. For instance, in the case of "a re-distribution of the assets of a deceased estate in the process of liquidation", clearly, the acquisition of the property of the deceased by A is indirect. The only ground for A's disqualification from exemption from transfer duty is the fact that, in the circumstances, A is neither an heir nor a legatee. It is of paramount importance to clearly distinguish between a transaction whereby property is acquired, on the one hand, and a transaction whereby ownership in property is transferred, on the other hand. Ownership in property acquired by heirs and legatees only passes to them upon delivery (transfer) of the property. Pending such delivery (transfer), the property remains the property of the deceased, as contemplated in section 9 (1) (e) (i) of the TDA.

Second, as discussed in the last paragraph of Redistribution and massing - reply, I submit that, similar to the point made in the preceding paragraph above, section 45 (1) of the Deeds Registries Act, 1937 (Act No. 47 of 1937), as amended, does not require that the surviving spouse's lawful acquisition of the share of the deceased spouse in the property be direct.

Thabo Nqhome

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