Real Estate Investor Magazine South Africa September 2016 | Page 36

LEGAL

Understanding the

Draft Taxation Laws Amendment Bill
BY JOSE DELGADO

T

he said bill is creating confusion and angst
amongst many a trustee as the bill aims to
introduce a number of highly prejudicial and
detrimental amendments that may affect lenders to
trusts and trusts directly if the amendments become
law.
In the first instance the Draft Taxation Laws
Amendment Bill document is a DRAFT and is
subject to public commentary and possibly may be
reviewed before being passed in due course, if at all.
The salient point of this article that deals with the
bill and relates specifically to trusts are contained in
the proposed insertion into the Income Tax Act of a
new section 7 (C).
The new section is intended to curb the transfer
of assets into trust structures through the means of
interest free loans or low interest loans.
In essence from the 1st of March 2017 any loans
that have been made by an individual or a connected
person to that individual to a trust that does not
attract interest or attracts interest at a lower rate than
the official rate will trigger income tax in the hands
of the lender.
Further, the interest exemption available to
individuals in the Income Tax Act does not apply to
such a transaction and if the income tax that results
from such an arrangement is not received by the
individual from the trust within 3 years when same is
due, such amount will be deemed a donation and will
attract donations tax at a rate of 20%.
The interest payable on the loan can only be tax
deductible by the trust if the interest qualifies under
the general deduction formula and is levied at market
rates.
The annual donations tax-free allowance of R100
000.00 per month is no longer available to individuals
to reduce these affected loans.
Avoid rushing into restructuring the trust structures
until the law has been settled. Get specialist advice.
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SEPTEMBER 2016 SA Real Estate Investor

The draft bill is in complete conflict with the
proposals that were put forward in the first Davis Tax
Committee report that stated that interest free loans
to trusts were in order.
Confusion reigns as individuals are being shoved
from pillar to post with the different positions that are
being postulated!
The proposed amendments are intended to curb the
supposed erosion of the tax base through the transfer
of assets via interest free loans trusts is nonsensical as
the number of individuals supposedly achieving these
tax breaks are miniscule.
There are many other means of raising taxes but this
is a complex and unjust attempt.
The above notwithstanding it is critical to consider
the reasons for having established the structures in
the first instance, namely:
1
2
3
4

Asset protection.
Succession planning.
Avoiding hardships such as estate freezing.
Protecting minors and beneficiaries that are not
financially astute or savvy.
5 Transfer of assets to future generations
We wait with baited breath on the outcome of these
proposed changes. We have feverishly been at work
on a number of solutions on how to minimise or
circumvent the impact of these changes if they are
ever implemented.
In closing, the more things change the more they stay
the same.

RESOURCES
DVK
www.reimag.co.za