Q: We would like some clarification on the following subject as we are of a
differing opinion than some of our colleagues. A trust sold some of its investments (listed
shares) during the financial year. The trust has held the shares for more than
five years. The transaction led to capital gains tax in the trust that was
subsequently distributed to the beneficiaries and taxed in their personal
capacity. The trust had no further taxable income. Some of the beneficiaries
were "income beneficiaries” and some were "capital beneficiaries” as described
by the trust deed. We are of the opinion that the above capital gains should only
have been distributed to "capital beneficiaries” as described in the trust deed
and not to "income beneficiaries”. The nature of the distribution was capital
in nature and thus the "income beneficiaries” could not receive such a
distribution. Our colleagues are of the opinion that both "income” and "capital
beneficiaries” are allowed to receive capital gains distributions. Your opinion
would be greatly appreciated.
our view this is a trust law matter and not a tax matter as paragraph 80 Eighth
schedule of the Income Tax Act does not differentiate as to the beneficiaries
right to the distribution but merely deals with whether factually it was
distributed (para 80(2) refers to a beneficiary who has a vested right in the
capital gain but not in the asset). You would have to determine if the trust
deed defines "capital” or "income” and determine whether the relevant capital
gain distributed by creating an entitlement to trust assets (i.e. by cash
payment or loan account) is settled/distributed by capital or income from the
trust as defined by the trust deed.
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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