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If you are married in community of property, you may be surprised to discover that 50% of your spouses’ tax liability from investments, such as the income from interest, rental, dividends and capital gains, is added to your tax bill – and vice versa.
If you did not sign an antenuptial contract, you are automatically married in community of property, which is the default marriage regime in South Africa.
As Crystal Venter, tax consultant at Tax Consulting SA, explains, this means that all assets and liabilities possessed prior to the marriage (subject to certain exceptions), as well as those acquired throughout the marriage, will be part of a communal (joint) estate.
Each spouse will be required to declare their respective earnings separately, with both being required to declare their respective joint assets.
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As these assets form part of the joint estate, the tax liabilities would be equally divided.
Subsequently, when you and your spouse are married in community of property, the income tax implication is that you are taxed on 50% of each spouse’s individual earnings from assets.
According to the SA Revenue Service (Sars), once it has identified you as married in community of property based on your previous declaration and has further verified this information against the department of home affairs, you and your spouse will be linked as follows:
If investment income is identified for you based on third-party data received (such as IT3(b) certificate for interest earned), the third-party data will also be entered on the spouse’s return if you have been linked on the Sars system and vice versa.
The investment income will be apportioned accordingly and will reflect on the notice of assessment (ITA34) issued to you and your spouse, on assessment.
If you are married in community of property, Sars may also share the information of your investments with your spouse, as this is allowed under the Protection of Personal Information Act.
This can have consequences for couples who may manage their finances separately, or who may be estranged. If you are separated or divorced from your spouse, you may inform Sars of the separation by completing an RRA01 form or lodging a dispute.
Venter explains that there are certain exceptions. Any earnings derived from engaging in a trade – such as receiving a salary – will not be divided between spouses; instead, they will be subject to taxation in the individual capacity of the respective spouse.
The same applies to earnings from a pension, provident or retirement annuity fund.
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Similarly, deductions for medical aid contributions, retirement annuities or pension funds will not be considered part of the communal estate and are applicable on an individual basis.
“In contrast, if you and your spouse elect to sign an antenuptial contract, each spouse bears individual accountability for their own assets and debts,” says Venter, who adds that it is essential for spouses married in community of property, like any other taxpayer, to exercise caution while filling in their annual tax returns to accurately indicate their marital status.
“If you have uncertainties regarding how your marriage regime may affect your annual income or estate in the event of death, we suggest consulting a tax expert for additional guidance.”
FREQUENTLY ASKED QUESTIONS
Are there any specific tax benefits for couples in a community of property marriage?
Cumulative income is deemed to have accrued equally to both parties and, if one spouse has accrued a larger value in income from, for example investments or rental, the individual will not be fully liable for taxes due and is able to potentially diminish their liability payable to Sars. This can be advantageous if the other spouse earns low to no communal income and therefore has a lower tax rate.
What happens in the case of joint assets acquired during the marriage when it comes to capital gains tax?
On the sale of a joint property or asset when individuals are married in community of property, any capital gains tax is deemed to have accrued equally to both parties, and both spouses would be required to declare their portion of the capital gains tax on their income tax return.
Are gifts between spouses exempt from donations tax in a community of property marriage?
Regardless of chosen marriage regime, donations between spouses are considered exempt from donations tax. However, if income incurred by a spouse has been derived as a consequence of donation and the sole purpose of the donation was an attempt to deliberately reduce or avoid taxation, incurred income will be deemed to have accrued to the donor’s spouse.
Can spouses in a community of property marriage choose to file joint tax returns?
Tax returns must be completed in their personal capacity and spouses are unable to utilise joint tax returns to declare income.
