An analysis of wealth taxes applicable to the transfer of capital assets by an individual in South Africa
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The responsibility to contribute towards the economic growth of a country lies with a government and its citizens. One of the ways in which citizens impact the economy is through their creation of wealth and how they use their assets. However, how the individual chooses to deal with their assets depends on factors such as the effects of tax policy. Therefore, fairness in tax policy will have a direct impact on the decision of the individual and how they choose to deal with their assets. This study addresses the research problem relating to the different types of taxes levied on the transfer of capital assets by a natural person in South Africa, and whether these taxes are considered fair or not. The research question investigated is, what are the different taxes applicable in South Africa on the transfer of a capital asset, the effects thereof, and how do they compare with similar taxes in other countries such as Australia, India and Namibia? The taxes applicable in South Africa are identified to be capital gains tax (CGT) triggered with almost every transfer, donations tax triggered with donations, and estate duty triggered at death. Transfer duty and securities transfer tax are costs associated with the acquisition of the asset, and thus also considered to form part of wealth transfer taxes. The effects of double taxation were evident with the application of CGT and estate duty on the estate of a deceased person, as well as with the application of CGT and donation tax when an asset is donated. Namibia does not have CGT, donations tax or estate duty, and consequently does not tax the capital growth in assets nor the estate of a deceased person. Australia and India both have CGT, however it is generally not applied at the death of the individual. Both countries previously had death and gift taxes which were abolished, which resulted in no tax being currently charged on the donation of capital assets, nor on the estate of a deceased person. The United Kingdom (UK), on the other hand, has both CGT and inheritance tax. The inheritance tax makes provision for tax on certain gifts and tax on the estate of the deceased person. However, CGT is not charged on the estate of a deceased person in the UK, and thus there are no effects of double taxation. It is recommended as potential additional studies, to consider either the abolishment of estate duty or the exemption of CGT on the estate of a deceased person in South Africa to avoid the effects of double taxation. Also, a more detailed analysis on the application of donations tax could be done to determine whether the current exemptions and exclusions provided for by the Income Tax Act are sufficient in the context of double taxation.