Every marriage in South Africa is subject to a marriage regime. The marriage regimes are simply stated a marriage in community of property or out of community of property (with or without the accrual system). The regime that will apply automatically (i.e., unless you enter into an antenuptial contract) is that parties will be married in community of property. Although this will happen automatically, it is important to understand the tax consequences of a marriage in a community of property. Apart from a few exceptions, all your assets and liabilities (before marriage and during your marriage) will form part of your joint estate. The question arises of how returns on such assets will be treated for tax purposes.
In general, the tax position can be summarised as follows:
- Investment income (generally profits in the form of interest, dividends, rental income or capital gains) will be divided equally between the spouses and taxed at their tax bracket.
- Unlike profits from communal assets, any income from carrying on any trade, for example, earning a salary, will not be split between the spouses but will be subject to tax in the hands of that particular spouse.
- Income from a pension- or provident fund, or retirement annuity similarly accrues to the spouse to whom the benefit is paid.
- Any deductions and allowances follow the accrual of income. In other words, where the amounts are split equally between spouses, any available deductions or allowances will be similarly split.
It is crucial that, as with any taxpayer, spouses married in community of property take care when completing their annual tax returns to record their marital status. Each spouse must then account for the total investment income of the joint estate, whereafter, the SARS system will do the automatic division between the spouses.
A marriage regime does not only impact the income tax treatment of annual profits but must also be considered when a spouse passes away, as a joint estate exists for estate duty purposes. When a spouse passes away, the entire estate must be administered, with the surviving spouse being entitled to half of the estate. Although only half of the estate will be divided according to the deceased spouse’s wishes, the entire estate must be administered.
If you are unsure about the impact of your marriage regime on your annual income or upon death, we recommend that you reach out to a tax expert for more advice.