This interesting question came up during one of my recent meetings. The point was that a deceased estate usually takes over two years to wind up and it is during that time that interest may or may not be compulsory on a loan made by the deceased to his/her trust structure.

Clearly, the starting point is s7C itself. Let’s see what it says.

7C.   Loan, advance or credit granted to trust by connected person.—(1)  This section applies in respect of any loan, advance or credit that—

(a) a natural person directly or indirectly provides to

(i) a trust in relation to which—

(aa) that person is a connected person

So, if a deceased estate is a natural person, then s7C applies.

Now we have to go to s25(5)(a)

(5)  A deceased estate must—

(a) other than for the purposes of section 6, section 6A, section 6B and section 6C, be treated as if that estate were a natural person.

So, there it is. The estate must charge interest, failing which the interest not charged will be deemed to have been a donation, subject to 20% Donations Tax.

Oh dear! Now we have to see whether a deceased estate can make R100,000 donations per tax year free of Donations Tax!

Back to the Income Tax Act s56(2)(b)

(2)  Donations tax
shall not be payable in respect of—

(b) so much of the sum of the values of all property disposed of under donations by a donor who is a natural person as does not during any year of assessment exceed R100,000.

And, as we saw above, a deceased estate is a natural person, so it can make R100,000 donation per tax year free of Donations Tax. That takes care of the first R100,000 interest that should have been charged and that means that the Executor loses R6,000 (6%) of his fees on the income earned by the Estate. No doubt he’ll charge an extra R6,000 to take care of the formalities related to the Donation.