ITR 12 - Return for Deceased and Insolvent Estates - 27 June 2025 – Layman Version

Understanding the Taxpayers: Deceased vs. Insolvent Estates

• • When an individual passes away or becomes insolvent, their tax situation changes, leading to different types of tax assessments.

Deceased Estates

• • When someone passes away, SARS considers two distinct tax periods:
    • • Pre-Date of Death Assessment: This covers income and deductions up to the date of the person’s death. For help with this, you’d refer to the “Comprehensive Guide to the ITR12 Income Tax Return for Individuals” on the SARS website.
      • Post-Date of Death Assessment – Deceased Estate: This assessment is for any income earned and deductions applicable to the deceased estate after the person’s death. This could include things like rental income or interest earned by the estate itself.
  • For individuals who passed away on or after 1 March 2016, the deceased estate needs a separate income tax registration if it earns taxable income. This is usually initiated by the executor or by SARS.
  • This guide specifically helps you declare this post-death income, deductions, and Capital Gains Tax (CGT) transactions.

Insolvent Estates

• • When a person becomes insolvent, the tax situation can involve up to three different “taxpayers”:
    • • The Insolvent Person Before Sequestration (Taxpayer 1): A final tax return must be filed for the period from the start of the tax year up to the day before sequestration.
      • The Insolvent Estate (Taxpayer 2): This is registered as a separate tax entity with a new tax reference number. It comes into existence mainly if there are capital gains and losses from assets sold to third parties. Its first tax period starts on the date of sequestration.
      • The Insolvent Person After Sequestration (Taxpayer 3): If the insolvent person earns income (e.g., from new employment or a business) after their sequestration, they are liable for tax on that new income under a new taxpayer identity.

The “One and the Same Person” Rule for Insolvent Estates (Section 25C)

• • This rule is very important for insolvent estates because it treats the person before sequestration and their insolvent estate as if they are the same entity for certain tax purposes.
  • This means, among other things:
    • • Assessed Losses: An assessed loss from the insolvent person before sequestration can be used to offset income in the insolvent estate.
      • Recoupments: Expenses and allowances (like depreciation) claimed by the insolvent person can be “recouped” (added back to income) in the insolvent estate.
      • Bad Debts: Debts incurred by the insolvent person can be claimed as bad debts by the insolvent estate.
      • Asset Write-Offs & Allowances: These can continue to be claimed in the insolvent estate.
      • Stock: Closing stock from the insolvent person’s tax calculation can be used as opening stock for the insolvent estate.
      • Debt Reduction: If the insolvent estate reduces a debt, special provisions (section 19) must be considered.
      • No Disposal on Sequestration: When assets transfer from the insolvent person to the insolvent estate upon sequestration, it’s not considered a disposal for tax purposes.
      • Capital Gains/Losses (CGT): CGT is determined by the insolvent estate when it sells assets to third parties, but it considers events that happened when the insolvent person owned them (e.g., previous depreciation allowances). An assessed capital loss from the insolvent person before sequestration can be set off against capital gains in the insolvent estate.

How to File the Return for Deceased or Insolvent Estates

• • Currently, the same ITR12 income tax return form used for individuals is completed for deceased or insolvent estates. However, certain sections of the return are not applicable to these estates, and this guide helps you identify which ones.

Submission Channels

• • You can submit the ITR12 return through these channels:
    • • eFiling: Register the deceased or insolvent estate on www.sars.gov.za for eFiling.
      • SARS Mobi App.
      • SARS Office: Make an appointment via the SARS website to get assistance from a SARS official.

Important Notes on Tax Practitioners

• • Registration is Mandatory: All tax practitioners who prepare and submit returns for clients must be registered with a Recognised Controlling Body (RCB) and with SARS.
  • Unregistered Practitioners: If a tax practitioner is not registered with an RCB, they can complete and save the electronic return but cannot submit it to SARS.
  • They can use the ‘Save’ option (saves incompletely without validation) or ‘Save for Filing’ (performs validations, makes the return available for retrieval at a SARS office or for the executor/trustee via shared access).
  • To ensure submission before the deadline, the executor/trustee must either:
  • Visit a SARS office (by appointment) to have a SARS official retrieve and submit the return.
  • Register for eFiling themselves and request shared access from the tax practitioner to submit the return.

Required Documentation

• • You will need various supporting documents to complete the return. Keep these for five (5) years from the submission date, as SARS may request them for verification:
    • • Certificates for local and foreign interest income, foreign dividend income, and tax-free investments.
      • Information for all capital gain transactions (local and foreign).
      • Details for letting fixed properties.
      • Financial statements for trading and farming activities (if applicable).
      • Any other documents related to declared income or claimed deductions.

Creating and Completing the Income Tax Return

• • The ITR12 return has many questions, and your answers will customize the form. Only sections applicable to a deceased or insolvent estate should be completed. 

Key Sections and Information to Complete: 

• • • Person Making the Declaration (3.1)
      • From 2025 tax year onwards, you’ll mark “X” if you are completing as a Tax Practitioner.

• • • Taxpayer Information (4.1)
      • Some information (like income tax reference number, year of assessment) is pre-populated and cannot be changed.
      • Personal Details: Complete or amend details like surname, first name, initials. Fields like date of birth, ID number, passport number cannot be updated via the return and require a SARS office visit.
        • Marital Status: This field will not be displayed for deceased estates. Select ‘Not married (Single, Divorced, Widow / Widower)’ for the deceased estate. For insolvent persons, indicate their correct marital status.
        • Spouse Details: Not applicable to deceased estates, but applicable for insolvent persons.
        • Contact Details: The executor’s or appointed trustee’s contact details (email, cell number, home/business phone) must be provided. SARS encourages providing an email and cell number for electronic communication.
        • Address Details: The executor’s or appointed trustee’s address must be completed.
        • Tax Practitioner Details: If a practitioner completes the return, their registration number, phone, and email are mandatory.

• • • Bank Details (4.2)
      • Estate’s Bank Account: It’s critical to provide correct banking details for the estate as SARS issues all refunds electronically.
      • You can select existing estate bank accounts on record or add new ones.
      • Verification: New bank details will be verified, and SARS may request supporting documents.
      • Bank Account Holder Declaration: You must declare if you use a South African bank account (your own, or a third party’s) or if you have no local account, stating the reason (e.g., Deceased Estate, Insolvency).

• • • Income Sections (5)
      • General Principle: Only income received by or accrued to the deceased or insolvent estate must be declared.

• • • Investment Income (5.3)
      • Local Interest: Insert all local interest earned by the estate (excluding SARS interest) next to source code 4201. Allowable interest expenses can be claimed (but cannot create a loss). From 2024 YOA, “Interest Earned From” and “Interest Earned To” dates are displayed.
      • SARS Interest: Declare SARS interest received by the estate next to source code 4237.
      • Foreign Interest: All foreign interest received by the estate next to source code 4218. Declare foreign withholding tax paid next to source code 4113.
      • Foreign Dividends: Gross foreign dividends subject to SA tax next to source code 4216. Foreign tax credits on foreign dividends next to source code 4112. SARS applies the exemption programmatically.
      • Real Estate Investment Trust (REIT) / Taxable Local Dividends: Insert the estate’s portion next to source code 4238. REIT distributions are subject to normal tax but exempt from Dividends Tax.
      • Dividends Deemed to be Income (S8E & S8EA): Capture amount next to source code 4292.
      • Exemptions: For a deceased estate, the interest exemption is R23,800 from 2015 YOA onwards. Exempt local and foreign dividends are declared in the “Amounts considered non-taxable” section. REIT distributions do not qualify for exemption.
      • Tax Free Investments (TFIs) (5.14): Any income (interest, profit/loss from share trading, dividends, capital gains/losses) from TFIs is exempt from tax.
      • Contributions: Limited to R36,000 annually (for tax years from 1 March 2020) and R500,000 lifetime. Exceeding these limits incurs a 40% penalty.
      • Insolvency: If the insolvent person (Taxpayer 1) didn’t fully use the R36,000 annual limit, the remaining balance can be used by the insolvent person after sequestration (Taxpayer 3) in the same year.
      • Declare total contributions (source code 4219) and any transfers or withdrawals.

• • • • Foreign Income (Excl. Investment Income, CGT) (5.4)
        • This section covers foreign rental, business/trading income/loss, farming profit/loss, royalties, Controlled Foreign Company (CFC) profit, and foreign employment income.
        • Currency Conversion: All foreign income must be declared in South African currency. You can use the spot rate or the average exchange rate for the year, available on the SARS website.
        • Foreign Tax Credits: Foreign tax paid on income taxable in South Africa can be deducted from SA tax. This is governed by Section 6quat (foreign source income) and Section 6quat(1C) (SA-sourced amounts). Proof of payment for foreign taxes may be required. There are limitations on foreign tax credits.

• • • • Trust Income (5.6)
        • If the estate receives income from a Trust or has a vested interest, this income must be declared.
        • From 2017 YOA onwards, this income is declared in a specific “Trust Income” section. Prior to 2017, it was declared under the specific income type (e.g., interest under Investment Income).
        • You’ll need the Trust Name, Registration Number, Tax Reference Number, and details of various types of local and foreign income (remuneration, interest, dividends, capital gain/loss, rental, business, farming, etc.) distributed by the trust.

• • • • Capital Gains Tax (CGT) (5.7)
        • Key Concepts: CGT applies from 1 October 2001. A capital gain or loss is triggered by the disposal of an asset. “Asset” is broad, “disposal” includes many events. Base cost includes acquisition, improvement, and disposal costs, but not general income tax deductions.

• • • • Deceased Estate CGT:
        • A person who dies on or after 1 March 2016 is deemed to have disposed of all their assets at market value on the date of death.
        • Exceptions to Deemed Disposal: This rule does not apply to assets transferred to a surviving spouse (under specific conditions, e.g., resident spouse, acquired by succession/redistribution/accrual claim). It also doesn’t apply to certain long-term insurance policies or retirement funds.
        • The deceased estate is treated as a natural person for CGT purposes (but without rebates or medical credits), meaning it’s entitled to the annual exclusion (R40,000), a 40% inclusion rate, primary residence exclusion, personal-use asset exclusion, and small business asset relief (R1.8 million lifetime exclusion, if not used by deceased).
        • There are special rules if the CGT liability for assets deemed disposed at death exceeds 50% of the estate’s net value, allowing an heir to accept liability for the tax debt.

• • • • Insolvent Estate CGT:
        • Due to the “one and the same person” rule, there is no disposal of assets when they pass from the insolvent person to the insolvent estate on sequestration.
        • Capital gains and losses are determined only when the insolvent estate sells assets to third parties.
        • The insolvent estate is treated as a natural person for CGT purposes, meaning it also gets the annual exclusion (R40,000) and 40% inclusion rate, and primary residence/personal asset exclusions.
        • The annual exclusion for the year of sequestration is shared between the insolvent person before sequestration, the insolvent estate, and the insolvent person after sequestration, in that order. In subsequent years, the insolvent estate and the insolvent person after sequestration each get the full annual exclusion.
        • An assessed capital loss from the insolvent person before sequestration can be carried forward to the insolvent estate.

• • • • Completing the CGT Section:
        • You can declare up to 10 local and 10 foreign capital gain/loss transactions separately. If multiple shares are administered by one administrator and reported on a single certificate, they can be treated as one disposal.
        • For primary residence disposals, the return accommodates the R2,000,000 primary residence exclusion.
        • Specify the Main Asset Type Source Code (e.g., immovable assets, financial instruments, crypto assets).
        • You’ll need to indicate proceeds, base cost, and any exclusions. Note if the disposal was made to a connected person.

• • • • Local Rental Income from Fixed Property (5.8)
        • Declare only the deceased or insolvent estate’s portion of rental income.
        • Each rental activity must be captured separately (up to 20 properties).
        • You’ll need to provide the property name/description, and if it’s not the first return, the unique identifier allocated by SARS from previous assessments.
        • Complete fields for rental income and applicable expenditure (e.g., accounting fees, agency fees, interest, rates, repairs).
        • For deceased estates, indicate “N” for the “Are you in a partnership?” question. 

• • • • Local Business, Trade and Professional Income (5.9)
        • Information relates to business activities carried on by the deceased or insolvent estate.
        • Up to 8 separate trading activities can be declared. If more, similar trades should be combined (e.g., profit trades together, loss trades together).
        • Provide the name of the business/trade and the unique identifier (if previously allocated).

• • • • Dual-Purpose Expenditure:
        • Explain that mixed personal/business expenses must be reasonably allocated, with detailed calculations retained for 5 years.

• • • • Capital Expenditure:
        • Generally not deductible as business expenses (e.g., land/building acquisition, improvements, goodwill).

• • • • Recoupment of Expenditure:
        • Recovered expenses previously allowed as deductions must be declared.

• • • • Ring-Fencing of Assessed Loss (Section 20A):
        • A deceased estate is treated as a natural person (for most purposes) for Section 20A.
        • Crucially, an assessed loss incurred by the deceased person before death cannot be carried forward to the deceased estate, as they are considered separate persons for Section 20.
        • Section 20A may prevent trading losses from being set off against other income if certain tests are met, especially if the trade doesn’t have a reasonable prospect of deriving taxable income.
        • This involves the three-out-of-five-year rule (for trades not listed as “identified trades”) and the six-out-of-ten-year rule (for “identified trades” where the “facts and circumstances test” can no longer be used to prevent ring-fencing).
        • Identified Trades include things like sport, collectibles, certain rentals, animal showing, gambling, and crypto assets. Farming is generally excluded from the six-out-of-ten-year rule due to its long-term nature.
        • The “facts and circumstances test” (subsection 3 of s20A) can help avoid ring-fencing by proving the activity is a genuine business with a reasonable prospect of profit, considering factors like gross income vs. deductions, commercial manner, and business plans.
        • You must indicate on the return whether the loss should be ring-fenced (Y/N).

• • • • Urban Development Zones (UDZ) – Section 13quat (5.10)
        • This provides accelerated depreciation allowances for commercial or residential buildings used for trade in approved UDZs. The sunset date for this deduction has been extended to 31 March 2030.
        • Different rates apply for refurbishment (20% over 5 years), new construction (20% year 1, 8% for 10 years), low-cost residential units, and first-time buyers from developers.
        • Declare the total cost incurred. Supporting forms (UDZ1, UDZ2, UDZ4) must be retained.

• • • • Recoupment of Venture Capital Company (VCC) Shares Sold: S12J (5.11)
        • This section relates to a tax incentive for investors in small/medium businesses through VCCs. Investors could claim income tax deductions for investments.
        • If VCC shares were sold, the deduction might be recouped (added back to income) unless held for more than five years.
        • Note: This deduction is not applicable from 2023 YOA onwards due to a sunset clause.

• • • • Other Taxable Receipts and Accruals (5.12)
        • Use this section to declare any income not covered elsewhere that must be included in taxable income (e.g., royalties – source codes 4212 profit, 4213 loss).
        • Note: If income is from a trust, it keeps its original identity and should be declared in its specific source section first, not here.

• • • • Amounts Received / Accrued Considered Non-Taxable (5.13)
        • This section is for income that is not taxable and will not be included in gross income for tax calculation.
        • Examples include donations, exempt local dividends (source code 4306 from 2025 YOA), exempt foreign dividends (source code 4307 from 2025 YOA), and interest earned by non-residents (for 2020 YOA and prior).
        • Any other non-taxable amount not listed can be declared under “Other” with a description.

• • • • Local Farming Operations (6.1)
        • All income directly from farming operations is farming income (e.g., grazing fees, recoupments, subsidies). Exclude foreign farming income, which goes under “Foreign Income”.
        • Rating Formula: The trustee of an insolvent estate can elect for normal tax on farming income to be calculated using a rating formula, provided operations continued after insolvency. This election is binding.
        • Details required for livestock sales due to drought/disease (paragraph 13/13A) and livestock sales deposited with Land Bank (paragraph 15).
        • Deductible farming expenses (e.g., purchase of livestock, rent, animal feed, wages, repairs, wear and tear, development/improvements) are listed in detail.
        • Standard Values for Livestock: Farmers can use fixed standard values or adopt their own (within 20% of fixed values), which becomes binding.
        • Partnership Farming Operations (IT48V) (6.2): This section is for farming conducted through a partnership. The estate declares its share of profit/loss. For deceased estates, generally, partnership question is “N” for their own farming operations, but this IT48V is specifically for the partnership aspect.

Deductions (7)

• • Donations (S18A) (7.1)
    • Deductible donations are limited to 10% of taxable income. Any excess is carried forward, but forfeited at the deceased donor’s death (not carried to the deceased estate).
    • A valid Section 18A receipt from an approved Public Benefit Organisation (PBO) is required. PBO numbers are validated by SARS.
  • Other Deductions (7.2)
    • Allowable Accountancy / Administration Expense (section 11(a)): A deduction is allowed for professional fees paid to complete income tax returns if there is business income or certain other income sources (e.g., local interest above R23,800 threshold, royalties, foreign dividends).
    • Deduction of Interest Repaid to SARS (s7F): If interest previously taxed under s7E is repaid to SARS, it can be deducted.

• •  

Statement of Local and Foreign Assets and Liabilities (8)

• • • • This section is not applicable to insolvent estates.
      • For deceased estates, this section is mandatory from the 2024 year of assessment onwards if assets are in excess of R50 million.
      • You will declare local and foreign assets (at cost and market value) and liabilities (e.g., fixed properties, shares, loan accounts, equipment, cash, mortgages, creditors).

Voluntary Disclosure Programme (VDP) (9)

• • Purpose: Allows taxpayers to regularize their tax affairs by voluntarily disclosing defaults or non-compliance.
  • If the deceased estate or insolvent person applied for VDP, insert the VDP application number on the return. Ensure all income and expenditure align with the VDP agreement.

Declaration and Signature (10)

• • The income tax return is a legal declaration. You are obliged to provide full and accurate information.
  • Consequences: Misrepresentation, neglect, omission, or false information can lead to penalties, additional assessments (with interest), and/or prosecution.
  • Signing: If filing at a SARS office, you’ll sign the return. If using eFiling, your password serves as the digital signature.