An analysis of the Davis Tax Committee's proposals on inter-spousal transactions

Abstract

In the 2014 national budget speech, National Treasury announced that a tax review committee headed by Judge Dennis Davis, namely the Davis Tax Committee was established and that this committee will, during the course of 2014, review the effectivity of the Estate Duty in South Africa. The Davis Tax Committee released its first interim report on Estate Duty in 2015, and after taking into account commentary received from the public (which included various professional bodies and tax experts), the committee released its final report on Estate Duty in 2016. In these reports, the Davis Tax Committee proposed various amendments to the current Estate Duty, Donations Tax and Capital Gains Tax treatment of inter-spousal transactions. These recommendations mostly relate to the limitation or complete removal of the various abatements and exemptions available to transfers of assets between spouses. The Davis Tax Committee argued that these recommendations resulted in a more equitable and more effective Estate Duty system. In order to assess the reasonability of these recommendations, this study analysed the reasons provided by the Davis Tax Committee, the commentary received from professional bodies and the financial impact thereof against the canons of a good tax system and the objectives of taxation. The analysis resulted in this study concluding that the recommendations will result in the Estate Duty system only being applicable to High Net Worth Individuals and therefore more vertically equitable. However, these recommendations will result in different tax consequences for equal taxpayers based on the type of matrimonial property regime that exists between the spouses. Finally, this study also found the recommendations to create uncertainty in the tax system and that the increase in taxation of High Net Worth Individuals might result in a decrease in economic growth.