If you are planning on getting married, it is advisable to understand the tax implications of marriage and how SARS will view the type of marriage contract you choose. If you are already married, this article can still help to shed light on how SARS views your marriage in regards to taxation.
Tax implications – Whether to marry or stay as an unmarried couple?
Its understandable that your choice of whether to enter into a marriage or not won’t be primarily based on tax implications. It is however valuable to know whether staying, as an unmarried couple, would place you in a better tax position than if you were married.
If your heart was set on marriage, the good news is that generally SARS does favor married couples over unmarried couples but it largely depends on the type of marriage contract.
The best marriage contract type for lowering your tax exposure
When planning to say, “I do”, it will hopefully be for the rest of your lives. If you are still young, this means that you have many years ahead of you and by selecting the correct marriage contract type now, you may be saving a considerable amount of money over the course of your married life.
There are three types of marriage contract you can enter into:
- Marriage In Community of Property
- Marriage Out of Community of Property (with Accrual)
- Marriage Out of Community of Property (without Accrual)
We will briefly explain the difference between marriages in and out of community of property:
Marriage In Community of Property
South African Law automatically assigns this form of marriage to any couple that doesn’t sign an ante nuptial contract before they are married.
This form of marriage means that any assets or debts that either spouse had before the marriage, is combined into a single joint estate. From that point on, any income or debts will be part of the combined estate.
The tax consequences of this is that the law sees each spouse as having an equal share in the joint estate and in any income earned from this estate. (This excludes a spouse’s salary and any related income in the form of fringe benefits). Because assets and liabilities are shared, both spouses are taxed on income from investments, estate duty and capital gains.
This form of marriage can have the biggest impact on your tax and is not generally recommended. All married couples should sign an ante nuptial contract before marriage so that the transfer and allocation of assets and income can be clearly defined.
Marriage Out of Community of Property (with or without Accrual)
This form of marriage contract means that instead of all assets and liabilities being merged into a single estate, each spouse is responsible for their own assets and debts.
The benefit is that both your income and your spouse’s income are taxed independently.
In Summary, it is generally better from a tax perspective to be married out of community of property and ensure you have an ante nuptial agreement. In the minority of cases there may be exceptions so it is always advisable to contact a tax consultant to look at your circumstances specifically.
If you would like to speak to a tax consultant, call Brett on 021 421 4444.