Spousal asset transfers: Closing the allowance gap

By Bruce Russel 

Section 9HB of the Income Tax Act provides for rollover relief where assets are transferred from one spouse to another. In terms of this rollover relief, no immediate income tax implications arise and the spouse receiving the asset is deemed to have the same cost or value in that asset as the transferring spouse.

Currently the relief provided in section 9HB applies to capital assets, trading stock, livestock and produce. However, the relief does not extend to a deferral of the recoupment of past tax allowances claimed by the spouse disposing of an asset and the recipient spouse is not deemed to have claimed past allowances in respect of this asset.

The issue that currently arises in terms of the law is briefly set out further. Where a spouse disposes of an asset, on which capital allowances have previously been claimed (‘an allowance asset’), that spouse is deemed, in terms of section 8(4)(k) of the Income Tax Act, to dispose of the asset for a consideration equal to the market value thereof. As a result, the spouse disposing of an allowance asset could be required to include, by way of a recoupment, past allowances in that person’s taxable income. The resulting income tax liability is at odds with the intention to allow assets to be transferred between spouses without triggering an immediate income tax liability.

Annexure C, contained in the 2026 Budget Review, sets out a proposed amendment to section 9HB. The proposed amendment seeks to expand the rollover relief to past capital allowances and will provide for the carry-over of accumulated allowances to the recipient spouse.