PIT Insolvency

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Click here to download a document with answers to frequently asked questions about the insolvent estates of individuals. 

When is an individual insolvent?

People become insolvent when their liabilities exceed their assets. An insolvent estate comes into existence when the insolvent person’s estate is placed under sequestration. An estate is under sequestration only if the court has issued an order accepting the surrender — or sequestration — of the individual’s estate.

What does sequestration do?

Individuals declared insolvent are sequestrated and dealt with under the provisions of the Insolvency Act, 24 of 1936. Sequestration means that the insolvent person is divested of his or her estate, which is then vested in the Master until a trustee has been appointed to administer and divide the estate to benefit creditors. When a trustee is appointed, the estate vests in the trustee.

Insolvency means that SARS terminates the insolvent person’s tax status before sequestration and substitutes it with a new tax identity after sequestration. When people are insolvent, their tax practitioners can deal with three different types of tax identity:

  • The insolvent person for the period before sequestration (taxpayer 1)

When a person becomes insolvent, his/her tax reference number used before sequestration will be closed and can never be used. Any Income Tax returns that are outstanding before sequestration must be submitted using the Income Tax reference number used before sequestration.

  • The insolvent estate (taxpayer 2)

The trustee of an insolvent estate must apply for a tax reference number for the insolvent estate. SARS will use this new tax reference number to deal with the trust’s tax affairs from the date of sequestration until the last day. This second tax reference number is not compulsory, and is applicable only if the whole or part of any business of the insolvent person is transferred to the trustee of the insolvent estate.

  • The insolvent person after sequestration (taxpayer 3)

The taxpayer must apply for a new Income Tax reference number once the taxpayer has been declared insolvent. SARS automatically registers a new Income Tax number for the period after sequestration when a person is reported to be insolvent. The taxpayer must communicate this new number to his/her employer to update his/her IRP5 submissions.

Sequestration creates a new tax entity when the insolvent person surrenders his/her estate or, in the case of compulsory sequestration, when the final sequestration order is given. SARS must register the insolvent estate as a separate tax entity and allocate a new Income Tax reference number to it. The insolvent estate must be registered for Income Tax only if income or capital gains/losses must be accounted for if the insolvent person’s assets must be given to third parties.

A separate tax return must be submitted for each of the tax-types identified above.

SARS will assess the insolvent person as a natural person before and after insolvency. Rebates will be allowed only on a proportional basis. The insolvent estate is not regarded as a natural person and does not qualify for the primary rebates and interest exemption because these provisions are limited to natural persons.

How to activate the post-sequestration number to submit Income Tax returns

See the steps to activate the post-sequestration tax number on eFiling to submit Income Tax returns for the period after sequestration.

Who is responsible for the tax affairs of the insolvent estate?

The trustee or administrator of an insolvent estate is responsible for the tax affairs of the insolvent estate as part of the process to wind up the estate.

Duties of the trustee

The most important duties of the trustee are to:

  • Find as many of the debtor’s assets as possible.
  • Liquidate the assets.
  • Distribute the proceeds of the estate according to the prescribed order of preference among the creditors who have proved claims against the estate. Creditors control the sequestration process at meetings to prove claims and decide the future of the estate. For asset distribution, the Insolvency Act distinguishes between secured, preferent, and concurrent creditors.

Duties of the trustee at SARS as the representative taxpayer

The trustee must:

  • Inform SARS that the taxpayer is insolvent.
  • Work with SARS regarding the insolvent estate.
  • Register the insolvent estate for tax purposes.
  • Submit tax returns of the insolvent estate.
  • Pay outstanding tax liabilities.

If a trustee or administrator of an insolvent estate does not comply with the requirements of the Income Tax Act and the Tax Administration Act, he/she can be made to pay the tax personally if the trustee does not pay the full amount due from the estate.

Deceased insolvent estates

If an executor finds that a deceased estate cannot settle its debts, the executor must inform the creditors of the situation before the estate is distributed. This notice to the creditors informs them that unless most creditors instruct the executor in writing to surrender the estate under the Insolvency Act, the executor will liquidate the assets in the estate according to the Administration of Estates Act.

To reduce costs and difficulties, the Administration of Estates Act enables the executor to administer the insolvent deceased estate without resigning or waiting until a trustee is appointed. 

If most creditors in an insolvent deceased estate instruct the executor to surrender the estate under the Insolvency Act, the usual rules will come into effect and apply also to an application to surrender. An executor can also apply to surrender an insolvent deceased estate without first consulting the creditors.

How do I make SARS aware of an estate?

Report a new estate case to SARS by:

To report a new estate case to SARS, refer to our FAQ on what is required to report the new estate to SARS and the supporting documents we need.

Update the state’s representative taxpayer’s details

The nominated representative taxpayer of the estate — the trustee or executor — as appointed by the Master of the High Court, must give SARS the official appointment documents so that we can update estate representative taxpayer’s details. Sending SARS the trustee’s appointment letter is essential, because all communication about tax enquiries, eFiling, and estate compliance must be sent to the correct email address. Representative taxpayers must also make sure that their personal tax profile with SARS is up to date and reflects the correct contact details and email address. SARS will not change the representative taxpayer’s profile when the relationship between the estate and the representative taxpayer is still being decided. Corporate stakeholders (the trustees or executors) who nominate their employees as the appointed executor or trustee of an estate, by the Master of the High Court, should ensure that these employees’ personal tax profile with SARS is updated and correct. Trustees/executors cannot update their details during sequestration.

How do I change banking details?

To change your 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, see or guide to change banking details.

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