How much does SARS tax on divorce settlement?
How much does SARS tax on divorce settlement?
Divorce in South Africa can have major tax ramifications, especially when it comes to asset division. Divorce settlements are subject to taxation by the South African Revenue Service (SARS), however, the exact amount of tax due varies depending on several variables. We’ll look at the amount of SARS taxes on divorce settlements in South Africa in this piece.
Taxation of Divorce Settlements
In South Africa, divorce settlements are taxed in terms of the Income Tax Act. The tax implications of a divorce settlement depend on the nature of the assets being transferred.
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Transfer of assets: When assets are transferred from one spouse to another as part of a divorce settlement, the transfer is subject to capital gains tax (CGT).
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Lump sum payments: Lump sum payments made as part of a divorce settlement are taxed as income in the hands of the recipient.
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Pension fund benefits: Pension fund benefits are taxed in terms of the Income Tax Act, and the tax implications depend on the type of benefit and the age of the recipient.
Tax Rates
The tax rates applicable to divorce settlements in South Africa are as follows:
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Capital gains tax: CGT is taxed at a rate of 40% of the gain, subject to an annual exemption of R40,000.
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Income tax: Lump sum payments are taxed as income, and the tax rate depends on the recipient’s tax bracket.
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Pension fund benefits: Pension fund benefits are taxed at a rate of up to 27%, depending on the type of benefit and the age of the recipient.
Example
Let’s say a couple gets divorced, and the husband transfers R1 million worth of assets to the wife as part of the divorce settlement. The wife’s tax liability would be:
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CGT: 40% of R1 million = R400,000 (subject to the annual exemption of R40,000)
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Income tax: depends on the wife’s tax bracket
In conclusion, the tax implications of a divorce settlement in South Africa depend on various factors, including the nature of the assets being transferred and the tax bracket of the recipient. It’s essential to seek professional advice from a tax consultant or financial advisor to ensure that you understand your tax obligations and minimize your tax liability.
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