Real Estate Investor Magazine South Africa December / Jan 2016 | Page 32

FINANCE

Trust Funds

Under Threat?

Understanding and Applying the Conduit-Principle
BY MICHAEL DRYDEN

T

he use of properly structured, well-managed
Trusts provides for a legal separation between
an individual’s personal wealth and the wealth
he or she jointly controls in a particular Trust. This
legal separation affords an individual or family a lot
of advantages related to protecting their hard-earned
wealth, such as reduced tax erosion on death and
reduced exposure to losses through litigation. For the
above reasons, and many more, well informed property
investors and businessmen make extensive use of Trust
structures.
In depth knowledge of Trusts though opens up
other advantages of using a Trust, which include
the use of the so-called ‘Conduit Principle’. The
Conduit-Principle relates to Tax Law that allows
for a unique way of applying Income Tax to Taxable
Income generated in a Trust, whereby such Taxable
Income can taxed in the Trust, or in the hands of
the Beneficiaries – the ability to choose is subject to
a myriad of anti-avoidance provisions in Tax Law,
therefore only the most experienced Trust Specialists
can take advantage of this effectively. The tax advantage
of having the option to choose where income is taxed,
lies in the differences between the tax rates applicable
to Trusts (40%) compared to tax rates applicable to
individuals (0 – 41%). Individuals also enjoy several
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