When planning your wedding, it’s highly unlikely that anything related to tax features on your agenda. However, when saying “I do” it’s very important to understand the tax laws associated with marriage because SARS treats income differently according to the type of marriage contract that binds you and your spouse.
Marriage in Community of Property
If you marry without an antenuptial contract, you’ll by default be married in community of property. This means that all assets and liabilities belonging to you and your spouse prior to the marriage, and all assets and liabilities you have accumulated during your marriage, will fall into a joint or communal estate. (There are a few exceptions, whereby certain assets may not be included in the joint estate).
The main income tax consequence of this form of marriage is that you're taxed on half of your own investment income (interest, dividends), rental income and capital gains and half of your spouse’s investment income, rental income and capital gains. The income is taxed in this way regardless of who the asset actually belongs to (i.e. in whose name it is registered).
When completing your tax return, you need to ensure you cross the correct box to indicate to SARS that you're married in community of property. The tax return will then allow you to give SARS your spouse’s ID number details. You must declare 100% of your investment income, rental income and capital gains and SARS will split it 50:50 between you and your spouse on assessment.
The other income (i.e. salary, freelance income, etc.) is taxed in the normal way based on who has earned it.
Marriage out of Community of Property (with or without accrual)
This type of marriage comes into effect when you marry with an antenuptial contract. It means that instead of all assets and liabilities being combined into a single estate, each spouse is responsible for their own assets and debts.
You and your spouse will be taxed separately on your own individual income if you are married in this way. This means that your spouse’s income will not affect your tax liability at all. So if you earn investment income, rental income or capital gains in your name, the entire amount will be taxed in your own hands (which is in contrast to the 50% split with your spouse if you are married in Community of Property).
Donations Tax and Marriage
One major advantage of officially tying the knot from a tax perspective is that donations between spouses are exempt from donations tax. This can have quite a significant impact on your overall tax liability.
Let’s look at an example:
John purchases a house with his long-term partner, Melanie. John and Melanie are not married. John contributes 60% of the capital, while Melanie contributes 40%. The parties agree they will be equal joint owners of the property (i.e. each own 50%) even though John contributed more capital.
John has effectively donated 10% of the capital to Melanie and this will trigger donations tax in his hands. Since donations tax is levied at 20% of an amount exceeding R100,000, this could have a significant financial impact for John.
However, were they to be married, John’s donation to Melanie would be exempt from donations tax. For further details about donations tax, please read our blog here.
Don’t let your marital contract confuse you when you file your taxes. Use TaxTim to ensure your tax return submission is simple, quick and accurate.