An estate can arise due to various circumstances. In the context of natural persons, it consists of a deceased estate and/or an insolvent estate as a result of sequestration. In the context of a company or close corporation that is declared insolvent, liquidation takes place.
An individual, company or close corporation is declared insolvent when their liabilities exceed their assets. Depending on the circumstances, a debtor (that is, the insolvent) may apply for a voluntary surrender or a creditor may make a compulsory application to the court. The various estates are briefly discussed below.
When a natural person (taxpayer) dies, that person is called a ‘deceased person’ and all his or her assets on the date of death will be placed in an estate. This estate is called an estate of a deceased person (commonly known as a ‘deceased estate’). Assets in a deceased estate can amongst other things include immovable property and movable property, cash in the bank, etc. The person who administers a deceased estate is called an ‘Executor’. Once the Executor has finalised all the administration in the deceased estate, the remaining assets (after paying all the debts) will be distributed to the beneficiaries.
The responsibility of the employer in respect of a deceased employee
The Fourth Schedule to the Income Tax Act (the Act) places various obligations on an employer in respect of the deduction or withholding of employees’ tax and the administrative requirements related thereto.
What obligation rests on the employer?
Paragraph 13(2)(b) of the Fourth Schedule to the Act provides that an employer, who ceased to be an employer in relation to an employee, for example when an employee dies, is required to deliver an employees’ tax certificate within 14 days of the date on which employment ceased to the former employee (or to such deceased employee’s representative).
The employer must therefore deliver an employees’ tax certificate within 14 days after the employee passed away. The employer is required to provide the employees’ tax certificate to the executor acting as the representative taxpayer of the deceased employee.
The provisions of paragraph 14(5) of the Fourth Schedule that states the employees’ tax certificate shall not be delivered until the EMP501 reconciliation was submitted to SARS is not applicable to the circumstances envisaged under paragraph 13(2)(b). An employer must therefore, in the case of an employee’s death, provide the employees’ tax certificate even if the reconciliation is not yet submitted.
What obligation rests on the executor?
The executor, as the representative taxpayer, is responsible to finalise the financial and tax affairs of the deceased employee efficiently and without any unnecessary delays. The executor should therefore ensure that the necessary documentation, like the employees’ tax certificate is obtained from the deceased’s employer.
For more information on deceased estates and the impact of income tax and estate duty thereon, refer to the Estate Duty webpage.
Individuals that are declared insolvent are sequestrated and dealt with under the provisions of the Insolvency Act, 24 of 1936. The effect of sequestration is that the insolvent person is divested of his or her estate which is vested in the Master until a trustee has been appointed, and, upon the appointment of a trustee, the estate vests in the trustee.
When a natural person becomes insolvent, a possibility of dealing with three taxpayers might arise:
- the insolvent person for the period before sequestration (taxpayer 1)
- the insolvent estate (taxpayer 2)
- the insolvent person for the period after sequestration (taxpayer 3).
The effect of insolvency from an income tax point of view is to terminate the tax status of the insolvent person before sequestration and to substitute it with a new taxpayer from the date of sequestration, that is, the insolvent person after sequestration. In addition, the natural person (insolvent person after sequestration) receives a new taxpayer identity from the date of sequestration. The insolvent estate is registered as a separate tax entity and a new income tax reference number is allocated to it. The insolvent estate will come into being only if there are capital gains and losses that must be accounted for in cases in which assets are disposed of to third parties. A separate tax return must be submitted for each of the periods identified above.
A deceased estate can also become insolvent and is dealt with under section 34 of the Administration of Estates Act, 1965.
For more information on insolvent estates refer to the Personal Income Tax Insolvency webpage.
More detailed information will in due course be made available in respect of insolvent estates.
A corporate body, company or other body of persons that is regulated by the Companies Act, 71 of 2008 and cannot be sequestrated in terms of the provisions of the Insolvency Act, but is liquidated (wound up) according to the provisions of the Companies Act.
Liquidation is a legal process that arises when a company or close corporation is divested of its legal status and is liquidated (wound up). The effect is that the company or close corporation’s assets are realised and distributed whereafter the existence of the legal person is brought to an end (deregistration). A company cannot be rehabilitated after its liquidation as its legal existence ceases after its deregistration. The Insolvency Act may find application to the extent that is applicable and in respect of any matter not provided for in the Companies Act.
More detailed information will in due course be made available in respect of the liquidation of companies or close corporations.
How do I get the process started to make SARS aware of an estate?
There are two options at this stage to report a new Estate Case to SARS:
- By sending an email to the SARS email addresses or
- by sending it through the new SARS Online Query System.
In order to report a new Estate Case to SARS, it is important that the correct Supporting Documentation be submitted to SARS. Refer to our FAQ on what is required to report the new Estate to SARS.
Update of the Estate’s Representative Taxpayer details
The nominated representative taxpayer of the estate (Executor / Trustee/Liquidator/Curator) as duly appointed by the Master of the High Court needs to ensure that the necessary official appointment documents are furnished to SARS in order for the details regarding the estate’s representative taxpayer to be updated.
This is vitally important, in the course of the estate initiation and finalisation process, as all communication regarding tax enquiries, eFiling matters and estates compliance is sent to the correct email address. As such, all representative taxpayers should ensure that their personal tax profile with SARS is up to date and reflects the correct contact details and email address. No changes and amendments to the representative taxpayer’s profile shall be done at the time of updating the relationship between the estate and the representative taxpayer. Updates to the representative taxpayer’s personal taxpayer profile can be done via the available electronic channels.
Corporate stakeholders (Executor / Trustee/Liquidator/Curator) who nominate their employees as the appointed Executor / Trustee/Liquidator/Curator of an estate, by the Master of the High Court, should ensure that these employees’ personal tax profile with SARS is updated and current. Their contact details and email address are critical in ensuring direct communication and smooth facilitation of the SARS Estates processes.
These updates and changes, as may be required, cannot be done as part of the estate process. Employees need to follow the generally prescribed channels to effect such updates and changes.
How do I change banking details?
If you need to change banking details, see the supporting documents needed for an Estate (Individual or Sole Proprietor), Corporate Executor, Sequestrated Individual/Trust or Company/CC under liquidation.
For more information on changing banking details, you can also see Guide on changing banking details.