In South Africa, all marriages fall under a marriage regime. There are two marriage regimes: marriage in community of property or marriage out of community of property (with or without the accrual system). All marriages automatically fall into the regime of being married in a community of property unless the parties have entered into an antenuptial contract before getting married.
Understanding the tax consequences of being married in a community of property is essential. With few exceptions, all your assets and liabilities (those acquired before and during your marriage) will form part of your joint estate. The question is, therefore, how returns on these assets should be treated for tax purposes.
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 divided similarly.
It is important for spouses married in community of property to be diligent when completing and filing their annual tax returns. Each spouse must accurately indicate their marital status. Subsequently, each spouse will record their entire investment income, following which SARS’s system will automatically divide the income between the two spouses.
A marriage regime 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.