Real Estate Investor Magazine South Africa May 2013 | Page 38

FINANCE

BYJOSE DELGADO

The New Trust Taxation
Should you embrace it or avoid it?
A FEW EXAMPLES MAY
ELUCIDATE THE POINTS MADE

1

2

T

he 2013 Budget Speech was balanced
and contained a modicum of relief for
small business owners and the average
man and woman. And of course the usual sin
taxes and how the funds are to be utilised.
Minister Gordhan made a reference to a reform
on the taxation of trusts, this has certainly ruffled
a few feathers and got tongues wagging. As far
as we are concerned the more things change the
more they stay the same… This will become
evident based on the points set out below.

Whilst the Minister mentioned these issues
they may not necessarily be implemented. In
previous years there have been discussions of
estate duty being abolished and this did not
transpire, in fact the opposite is now being
stated. This may well be the case with the
proposals contained in the Budget Speech.

So, what do the proposed changes mean for
YOU as an investor? How are you affected? Is a
trust structure to be avoided or embraced?

The Budget proposals will cause the demise of
trusts…trusts are now highly tax inefficient…
Changes to tax will kill of trusts...

The pertinent issues that Minister of Finance
mentioned per taining to tr usts are the
following:
1. Estate duty remains in place and the Treasury
is to review how to curb the use of trusts to
minimise duties.

The majority of the media statements and
commentary have arisen around the Budget
Review document. This document brief ly
touched on the proposed or intended changes. It
has been stated that the flow through principle
is to be addressed by ensuring that the revenue
or gains will be taxed in the hands of the trust.

2. There is to be a reformation of the taxation of
trusts to prevent abuse.

This singular statement has been taken out of
context and needs to be properly analysed.

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May 2013 SA Real Estate Investor

We now turn to what all the hype and the
naysayers have to say about the taxation of
trusts:

You want to save capital gains tax
when selling your house or assets
BUT end up losing the asset to a
creditor or in divorce because it is
not in a trust!
You wish to save capital gains tax
on some assets that you may sell
during the course of your life BUT
on your demise your estate pays
CGT on ALL YOUR ASSETS.

3

On death your estate pays
executor’s fees of roughly 4% on
the GROSS value of all your assets!
Plus a 6% fee on any income that
flows into your deceased estate.

4

There will be various costs levied
to transfer properties and assets to
beneficiaries.

5

Estate duty of 20% of the net value
of your estate is payable on death.

6

YOU must also consider the major
tax advantages that you and the
beneficiaries will enjoy before the
asset is sold, e.g. the trust owns an
asset that generates R 100 000.00
per annum for 10 years and this is
distributed to your children. This
results in tax free income of a
R 1million. In the event of the sale
of the property, if the trust pays
26.67% CGT instead of 13.3%, the
net position is that you will be
better off overall, this is also not
taking any losses into account.

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