Marvelous Tapera 
THE death of a person does not change the nature of his income nor how it is taxed. If an amount would have been income in the hands of the deceased, it will also be income when received by the executor.
His remuneration, including voluntary awards given in respect of services rendered, remains employment income.
However, the voluntary payments only apply to amounts received or accrued to the executor.
A voluntary award made directly to a dependent or heir of the deceased could be treated as an amount of capital in nature, since the dependent did not render any services.
The biggest problem usually arises on income and expenses received or paid after the date of death and not income accruing before death.
Whether or not the amount constitutes taxable income, regard should be had to whether the amount is revenue in nature and whether the person was entitled to the amount.
In Hersov’s Estate v. CIR 21 SATC 106, Hersov had entered into an agreement with his company that should he die first, before the company wound up his estate, he would be entitled to be paid a certain percentage of the net assets of the company; the court held that the amount in question was of a revenue nature and that Hersov became entitled to the amount after he died.
The amount was taxable in the post-death period since Hersov was to die for him to be entitled to the amount.
Applying these principles, the following show how certain items are treated in the computation of the deceased’s taxable income:
– Cash in lieu of leave received by the executor of the deceased estate of a civil servant is not taxable, even though the amount could have been taxable had it been received by the civil servant during his lifetime.
– Bonuses and directors’ fees voted after death or which are not fixed in the Articles of Association or Shareholders Agreement are not taxable since the deceased had no right to the amount during his lifetime.
– Leave pay under an employment contract, royalties on a book, bonus, or directors’ fees fixed in the Articles of Association (despite being voted after death), and contractual commitments are taxable in the post-death period.
– Salary, business income accruing to the date of death, bonus or director’s fees voted by the date of death, and contractual commission due at the date of death are taxed in the pre-death period.
– Commission in terms of a contract or agreement, which is paid after death, to the executor of a deceased estate will be taxable either in the hands of the deceased if it becomes due and payable before death or in the hands of the estate if it becomes due and payable after death.
-Any income made by a taxpayer as a director of a company or as an employee in respect of a right to acquire marketable securities shall be deemed to have been made by him on the day before his death and shall be included in his income up to the date of death.
-Any lump-sum awards from pension, provident and retirement annuity funds payable on the death of the member of such a fund are deemed to accrue to him prior to his death.
Tax credits to which the person is entitled can only be claimed pre-death. No tax credit is allowed to a deceased estate.
The credits are reduced proportionately on a time basis. Medical expenses credit is claimed in the pre-death assessment despite being paid after death.
Death may also result in life policies from insurance being paid to the estate or beneficiaries, including some other death benefits, pension, etc.
These are generally non-taxable as being capital in nature. The Act does not operate to tax an amount that the executor has no right to claim.
As such amounts that bypass the estate such as amounts payable directly to the family or relative of the deceased are non-taxable. Lump-sum paid directly to a beneficiary in terms of rules of a pension or benefit fund is of a capital nature.
Further recoupment resulting from the realisation by the executor of fixed assets owned by the deceased is not taxable, since no capital allowances were allowed to the estate.
In conclusion, a person will be taxed to death and there is a need to make sure that tax planning measures are done properly to avoid heavy taxes on the deceased’s beneficiaries.
Meanwhile, Matrix Tax School invites you to take part in the upcoming Conversion for Tax Preparers from July 21-23, 2022 at Kadoma Rainbow Hotel and Chengeta Safari Lodge.
Tapera is the founder of Tax Matrix (Pvt) Ltd and chief executive of Matrix Tax School. He writes in his personal capacity.
