Yasmeen Suliman, Director: Corporate Tax, KPMG Services - Time to Revisit Trust Structures
Yasmeen Suliman, Director: Corporate Tax, KPMG Services - Time to Revisit Trust Structures



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Yasmeen Suliman, Director: Corporate Tax, KPMG Services - Time to Revisit Trust Structures

2016-10-18

Trusts are popular vehicles for estate planning, asset protection and the reduction of tax through income splitting.

It is well known that National Treasury and the South African Revenue Service (SARS) are not completely satisfied with the current rules governing the taxation of trusts. As a result of this, the tax return related to trusts was completely redesigned last year so that SARS could gather more information on trusts and its transactions with donors and beneficiaries.

Some drastic legislative changes were also proposed in previous years but were withdrawn prior to being finalised. Taxpayers may not be so lucky with this
year's round of tax amendments and in the future due to the Davis Tax  Committee proposals.

This year's tax amendments targets the transfer of assets to a trust, utilising an interestfree or low interest loan to fund the transaction - in terms of the proposed amendment, the interest forgone on the loan to the trust will be deemed to be an ongoing donation, with donations tax having to be accounted for each year.

If the recommendations of the Davis Tax Committee are accepted, the following changes may be made to tax legislation in the near future:

Where a connected person has provided a loan to a trust and the loan is interest-free or bears low interest, then that person could be regarded as having defacto control over the trust, and the trust assets may be included in that person's estate for estate duty purposes.

Only where a discretionary trust confers upon its beneficiaries an indisputable and irrevocable vested right to both the capital and income of a trust should the income, both capital and revenue, be taxed in the hands of the beneficiary. Where this is not the case, the income and capital gains will be taxable in the hands in the trust at the trust tax rate.

The Davis Tax Committee also has recommended that more SARS resources be allocated to risk-profiling and examination of trust structures on registration of the trust and upon transfer of assets, which means more audit activity would ensue.

It appears that the ability to easily transfer assets to a trust and to split income through using a trust may be soon be lost. This does not mean that trusts are no longer relevant - on the contrary, trusts could still be an effective structure for asset protection and estate planning in the light of capital gains tax being applicable on death and the Davis Tax Committee recommending that the estate duty tax rate be increased from 20% to 25%.

However, the proposed amendments to trust legislation does mean that taxpayers need to plan new trust structures carefully and re-examine the structure of their existing trusts to consider restructuring these to be more tax efficient.

Tel: 082 778 1031
Email: yasmeen.suliman@kpmg.co.za




Yasmeen Suliman, Director: Corporate Tax, KPMG Services - Time to Revisit Trust Structures

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