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Donation, settlement or other disposition for purposes of sec 7

24 October 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: After attending 2014 Trust Back to Basics, it was suggested donor interest-free loans should bear interest otherwise a disposition would arise which would be taxable in the donor’s hands.

Kindly confirm if this is the case.

A: The courts have held that an interest free loan can indeed constitute an "other disposition” for purposes of section 7 and would therefore apply to a special trust as well. 

SARS states in their Draft Guide on the Taxation of Special Trusts that "section 7(2) to 7(8) may have the effect that the income of a trust is taxable in the hands of the person who made a donation, settlement or other disposition to a trust. In some situations this rule will apply even if the amounts have been vested in a beneficiary, such as when the beneficiary is a spouse and tax avoidance is involved or when the beneficiary is a minor child or when the donation is revocable at the instance of the donor.”  

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.


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