Senwes Scenario Desember - Februarie 2020 | Page 48

FINANSIES | FINANCES
Trusts and
Capital
Gains Tax
Many of our clients have a number of trust structures in place. These trusts distribute
income and capital gains amongst each other prior to these being finally distributed to
a natural person. Such gains are taxed as a capital gain in the hands of the first trust to
which they are distributed. This is a blow to all such structures.
 Lucas Coetzee
Liberty Legal Specialist
A
ny insurance policies effected as
part of such structures may fail to
achieve the desired outcome. The
bottom line is that as a higher rate of tax
than that expected will be payable, the
amount of capital ultimately available may
be insufficient to meet the actual needs of
the natural person.
The taxable capital gain of a trust other
than a special trust, is taxed at an effective
rate of 36%, while that of an individual is
taxed at a maximum effective rate of 18%.
Fortunately for trusts, trustees and
bene­ficiaries, legislation around the tax-
ation of trusts has developed what has
been termed “attribution rules”, which
in certain instances, provide that trust
income, including capital gains, can be
attributed to a beneficiary if vested in
that beneficiary in the same tax year as
the year in which the trust acquires the
income, or it can be attributed to the
donor of the trust. Instead of being taxed
46
at the trust’s rate, such income would
therefore be taxed at the beneficiary’s
rate, which means that not only could this
be a lower rate than that of the trust, but
also that any exemptions and rebates that
the individual may be entitled to, can be
used to further reduce the tax payable.
WHEN COULD A TRUST BE LIABLE
FOR CAPITAL GAINS TAX?
CGT would arise in relation to a domestic
trust with resident beneficiaries:
When a discretionary trust vests
assets in a beneficiary
In these instances, capital gains will be
ignored in the trust and taxed in the bene-
ficiary’s hands at the time of vesting,
with the base cost being the market
value at the date of vesting. That means
that the beneficiary will be liable for the
capital gains tax immediately, and then
if the beneficiary should sell the asset at
a later stage, the base cost for purposes
of that sale would be the market value at
the date that he received the asset from
the trust.
SENWES SCENARIO | SOMER • SUMMER 2020
When a trust distributes assets of a
capital nature to a beneficiary who
had a vested right thereto
After the amendments introduced by the
Revenue Laws Amendment Act of 2008,
the date of disposal of an asset to the
beneficiary is when the beneficiary actu-
ally acquired the vested right to the asset,
and not when the asset is transferred.
For example: A bequeaths his fixed
property to his son B, with the condition
that should B be less than 30 years of age
at the time of A’s death, such property will
be held in trust until B reaches the age of
30. When A dies, the property is valued at
R1 000 000, but when B turns 30 years
the property is valued at R1 500 000.
On A’s death, the property will be
transferred to the trust but B has a vested
interest in the property. When B reaches
age 30 and the property is transferred to
him, he acquires property valued at
R1 500 000. His base cost will however,
not be R1 500 000 but rather R1 000 000,
being the value of the property at the
time he acquired a vested interest in the
property.