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You may be liable for your spouse’s tax bill

Feb 27, 2024

What being married in community of property means for your taxes

What being married in community of property means for your taxesIf you are married in community of property you may be surprised to discover that 50% of your spouse’s tax liability from investment income (such as interest, rental income, 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 is required to declare their respective earnings separately, and they are required to declare their respective joint assets. 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.

Once SARS has identified you as married in community of property based on your previous declaration, and has verified this information against the Department of Home Affairs records, 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) certificates 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, upon 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 (POPI) Act.

This can have consequences for couples who may manage their finances separately, or who may be estranged. If you are separated or divorced, 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, each will be subject to taxation in their individual capacity.

The same applies to earnings from a pension, provident or retirement annuity fund.

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.”

FAQs

Q: Are there any specific tax benefits for couples in a community of property marriage?

A: 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.

Q: What happens in the case of joint assets acquired during the marriage when it comes to capital gains tax (CGT)?

A: 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.

Q: Are gifts between spouses exempt from donations tax in a community of property marriage?

A: 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.

Q: Can spouses in a community of property marriage choose to file joint tax returns?

A: Everyone must complete their own tax return in their personal capacity, and spouses are unable to utilise joint tax returns to declare income.

This article first appeared in City Press.

7 Comments

  1. Hi Madam, what if we are married in community of property and our marriage lasted only 3.months, what will happen to my pensions.

    Secondly Madam what is the Annulment of marriage does that not applying in such short fall marriage??

    Reply
    • The length of the marriage is taken into account when assessing a pension benefit. You will however need a divorce order

      Reply
  2. I am currently in separation with my spouse pending a divorce and we married in COP. My tax bracket is by far higher than my spouse. I get taxed 4 times a month as I get paid weekly and my spouse gets taxed once a month as he is monthly. We do have a joined bond which i am still paying for 100%. Do I need to notify SARS about our current situation and what effect will the separation have on our taxes?

    Reply
    • When it comes to income tax paid on a salary, that is completely separate. You are not liable for your spouse’s income tax earned from a salary. It is only taxes levied on investments including interest earned. If you have investments outside of your retirement funds – eg: fixed deposits, then that interest income is divided between spouses. The tax would not affect your primary home unless you sold it for R2 million more than you purchased it for. On a primary residence, after a R2 million capital gain, capital gains tax would be levied. It is advisable to inform SARS once you are divorced as it could affect future savings and investments.

      Reply
      • I like your publications and I benefit a lot rom them

        Reply
  3. What must be done if I want to reverse the tax charged on my spouse to my account so that I would be able to pay on my own

    Reply
    • You would need to make a request to SARS. On the tax return you can exclude your spouse from communal estate (if you have an existing legal contract) by accessing your return where the ‘Investment income’ section appears. Search for the Interest Income that you wish to exclude from the communal estate, then select “Mark here with an “X” if this amount should be excluded from the communal estate (if married in community of property)”.

      Reply

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Maya Fisher-French author of Money Questions Answered

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