Section 9HB of the Income Tax Act provides for a roll-over of a capital gain or loss when an asset is transferred between spouses during their lifetimes. The roll-over is mandatory, and spouses do not have the option to elect out of it. The policy rationale for the roll-over is that the transferor spouse must benefit from not immediately having tax exposure on a transaction since the transferee spouse will pay the downstream tax when they eventually dispose of an asset, or when it becomes part of the estate.

Importantly, the roll-over relief in section 9HB will not apply when a person disposes of an asset to a spouse who is not a resident.

On a practical level, the relief works as follows:

• The disposing spouse (transferor spouse) must disregard any capital gain or loss when disposing of an asset to his or her spouse (transferee spouse).
• The transferee spouse takes over all aspects of the history of the asset from the transferor spouse. The transferee spouse is deemed to have:
  • acquired the asset on the same date that the asset was acquired by the transferor
  • incurred an amount of expenditure equal to the expenditure that was incurred by the transferor in respect of that asset
  • incurred that expenditure on the same date and in the same currency that it was incurred by the transferor
  • used that asset in the same manner that it was used by the transferor

Notably, apart from outright transfers, the following events are treated as disposals between spouses:

(a) A deceased spouse

In the event of the death of one spouse, the resident surviving spouse must be treated as having disposed of an asset to that spouse immediately before the date of death – if the deceased estate of that spouse acquires ownership of that asset in settlement of a claim arising under the Matrimonial Property Act.

(b) A divorce or court order

A person must be treated as having disposed of an asset to his or her spouse if that asset is transferred to that spouse in the following cases:

• Divorce
• A religious marriage or civil union, where an agreement of division of assets has been made an order of court.

The special rules under section 9HB must be considered to determine the tax implications when a person disposes of an asset to his or her spouse. While providing for a roll-over of a capital gain or capital loss when an asset is transferred between spouses during their lifetimes, it also ensures that a resident spouse to whom an asset is disposed of, takes over all aspects of the history of the asset from the transferor spouse.

While the possibility of a global pandemic was always at the back of our minds, its emergence still managed to catch us off-guard and wreaked havoc on every aspect of our lives, particularly the world of work. Therefore, it’s safe to say that Covid-19 has been a wake-up call for organisations to rethink their priorities and strategies to ensure their businesses will survive the next disaster.

When you fail to prepare, you prepare to fail

The current health crisis highlighted the vulnerability of businesses around the globe, exposing the consequences of fragile business continuity plans and executives completely failing to prepare for unforeseen crises. Covid-19 is not the first crisis our world has faced, and it will certainly not be the last. From disease outbreaks to climate change threats, and cyber-attacks, the list of future potential business crises is endless. Now is the time to pay attention to the bigger picture – to learn from global businesses, adapt to create new opportunities, and prioritise business continuity planning.

How will an effective Business Continuity Plan (BCP) benefit your business?

Business continuity planning is the proactive process of understanding your company’s vulnerabilities and ensures that your business knows what measures to take to keep operating and maximise its growth potential in the face of unpredictable events. An effective BCP minimises losses and costs; protects your workforce, physical assets, and electronic assets; prioritises continuity and recovery of critical business functions and supply chain processes; and reduces recovery periods.

While most businesses do have BCPs in place, they don’t always take the time necessary to review and update them. In light of the current global crisis, business leaders can’t afford to make the same mistakes in the future. It’s time to dust off and revise your business continuity plan if you want to ensure that your organisation emerges stronger the next time around.

BCP 101: What steps can your business take to better prepare for the next crisis?

Identify existing vulnerabilities: How businesses position themselves in a post-pandemic world is critical in building organisational resilience and will determine how well they respond to future disasters. In what ways was your business not prepared for the Covid-19 pandemic? Think about the impact of those pitfalls and the likelihood of it happening again. Focus on what your business can do to mitigate those risks in the face of the next potential crisis.

Anticipate financial fluctuations: Cash flow is certainly the biggest challenge that organisations faced during the Covid-19 outbreak. Assess the probable impact of various scenarios and evaluate your company’s working capital accordingly. If your cash reserve is not sufficient, you will need to set aside funds that will help keep your debt low while your business keeps operating. Speak to an accredited financial advisor if you are uncertain about your cash reserve requirements or whether all financial planning risks have been thoroughly addressed in your business.

Overcome AI fears: Many employees are concerned that they will lose their jobs once their employers implement Artificial Intelligence, failing to realise how it can empower them to improve their performance. Take remote working for example – if it wasn’t for digital innovation, most businesses wouldn’t have been able to continue their operations. For your business to be well-prepared for unexpected crises, you must recognise that technological advancements will accelerate, and online demand for products and services will increase. “Business as usual” is a thing of the past and business leaders will have to start thinking out of the box. Attract new clients by increasing your online presence and developing new service offerings in a digital world.

Provide upskilling opportunities: To remain relevant and gain a competitive advantage in an ever-changing consumer market, it is critical to provide your workforce with upskilling opportunities. Your employees are your most valuable asset, which is why investing in online training should be of critical importance. With the accelerated digitalisation brought about by the pandemic, and the needs of businesses and consumers constantly changing, there is an urgent demand to bridge knowledge gaps and sharpen essential skills among staff to ensure future business success.

Establish roles: Build a crisis management team, and determine who will be in charge of what when disaster strikes. This includes clearly articulating which participants will initiate the BCP and who will manage the execution of the activities. Assigning the right individuals to the right roles and informing each person about their specific responsibilities will optimize your business continuity. Conversely, placing the wrong individuals, i.e. those lacking in certain skills and experience, in the wrong positions, can result in poor performance, and ultimately – an ineffective business continuity plan.

Test and revise your plan: Once you have updated your BCP, it cannot be considered final until you are truly sure it will work in any situation. Take the time to search for any weak spots in your BCP and rectify them accordingly. Schedule a debrief session with your crisis management team following the test to gather their input and to address what worked and what didn’t. Listening to their concerns and suggestions will help you develop new perspectives that could possibly lead to further adjustments. Only when you are fully confident that your BCP has covered all the bases, you can put it aside until it needs to be tested and revised again.

The coronavirus catastrophe serves as an important reminder for business leaders that crises do happen. And they will continue to happen. But ensuring that your business has an effective BCP in place, will make it easier for your business to bounce back when the next crisis hits. Keep in mind that a BCP is not a one-size-fits-all solution and will vary according to each organisation’s unique corporate culture, structure, and operational requirements.

What measures have you taken to make business continuity a top priority in your organisation? Speak to your financial or risk adviser as you establish your comprehensive BCP.

The Wills Act sets out the requirements for a valid Last Will and Testament. For a will to be valid, it must be signed and witnessed. What happens if the wishes of the deceased are clear, but the document does not meet the requirements of a valid will?

This was the heart of the matter in Estate Late Elaine Ilsia Williams and Others v Hendricks and Another, heard in the Western Cape High Court.

In this matter, the close relations of the deceased sought an order directing the Master of the High Court to accept as a will for the purposes of the Administration of Estates Act, a pro forma document signed by the deceased in which she gave instructions to a bank to draft her Last Will and Testament.

The nature of the bank document was consistent with its printed title, “Will Application/Aansoek om testament.” It is apparent from the terms of the document that the bank offers a service for the drafting of wills. The service is provided free of charge if the bank’s trustee company is nominated as the executor.

The deceased’s instructions to the bank in respect of the content of the will were framed as follows: “I would like to give my full estate to my son until he is of age as well as any other monetary payouts as a result of any claims.” It would appear that the deceased also wished her will to provide that the bequest to her son should be administered in a trust until the child attained the age of 21.

The will application form was completed by the deceased with the assistance of a representative of the bank on the day before she died. She was terminally ill with cancer at the time. The deceased passed away before her instructions for the drafting of a will were executed.

The applicants relied on Section 2(3) of the Wills Act: “If a court is satisfied that a document or the amendment of a document drafted or executed by a person who has died since the drafting or execution thereof, was intended to be his will or an amendment of his will, the court shall order the Master to accept that document, or that document as amended, for the purposes of the Administration of Estates Act, 1965 (Act 66 of 1965), as a will, although it does not comply with all the formalities for the execution or amendment of wills referred to in subsection (1).”

As is evident from the wording of Section 2(3) of the Wills Act, it is required of an applicant seeking an order of the sort contemplated by the provision to establish, amongst other things, that the document in question was intended by the deceased person to be his or her will. It is in that regard that the application runs into difficulty on the merits. Nothing specifically indicates that the deceased intended the document to be anything other than what it appears to be – an instruction to the bank to draft a will.

The court held that there was no evidence that the deceased intended the will application to be anything other than an application for a proper will to be drafted. Therefore, the applicants failed to prove the requirement that the deceased intended the document to be her last will and testament, as required by Section 2(3) of the Wills Act.

Courts are wary to declare documents that do not comply with the requirements of the Wills Act as valid wills. It is advisable to obtain professional assistance from an attorney or a fiduciary expert with the drafting of your Last Will and Testament.

Reference List:

• Wills Act 7 of 1953
• Estate Late Elaine Ilsia Williams and Others v Hendricks and Another [2021] ZAWCHC 66