Question

Lulama Lisbon is a 55-year-old businessman. He is running a successful Tyre repair business as a sole trader. Lulama Lisbon is considering getting married to his life partner, Ms Roberts. Lulama Lisbon is also considering appointing his partner, Ms Roberts as his assistance and paying her a high salary that would be allowed as a deduction in terms of section 11(a) in his business, this is to help him not to pay too much tax. Lulama Lisbon is aware that his proposed nuptials may have certain tax implications and he asked for your advice relating to the following items:

1) What are the tax implications for both parties should they decide to get married out of community of property?
2) What are the tax implications for both parties should they decide to get married in community of property?
3) What are the tax implications for Ms Roberts, should she receive a high salary?

Answer 1

If Lulama Lisbon marries out of community of property, financial affairs remain separate, with no direct tax impact on his business. Marrying in community of property means shared assets and liabilities, affecting both their tax situations. Paying Ms. Roberts a high salary would mean the business can deduct it, but she would pay tax based on her bracket.

Step-by-step explanation:

If Lulama Lisbon, a businessman and sole trader, gets married out of community of property, both parties would maintain their individual financial affairs, and their assets and liabilities would remain separate. This means Lulama's business wouldn't be directly affected by marriage, and the same goes for his tax liability; it would remain solely with him unless Ms. Roberts contributes to the business as an employee.

In contrast, if Lulama and Ms. Roberts marry in community of property, their assets and liabilities, including the business, would be shared equally. This could influence the tax situation since both would be responsible for tax on any income generated by the jointly owned assets, potentially affecting the business's financial and tax responsibilities.

If Ms. Roberts is paid a high salary as an assistant within the business, this may be allowed as a business deduction under section 11(a), reducing the taxable income of the business. However, Ms. Roberts would then be responsible for paying tax on her salary according to her own tax bracket, which could be higher, depending on the amount she earns.

It is essential to ensure that the salary given to Ms. Roberts is justifiable as a legitimate business expense and commensurate with her duties to avoid any possible issues with the tax authorities regarding disguised forms of income distribution.