CGT implications of a sole beneficiary’s renunciation of all her rights to a trust’s assets & income
03 March 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: My client over
is 65 years old and the sole beneficiary of a trust. The trust is worth
millions of rands. She wants to renounce all rights and donate the entire trust
to another trust. She is fully aware of her intentions and is not being coerced
into the transaction. What are the CGT implications?
A: In our view
the renunciation by the only beneficiary will result in the trust not being a
legal trust. A trust must have a beneficiary or stated object; see definition
of "trust” in Trust Property Control Act. The disposal of the remaining assets
would have to occur in accordance with the Trust Deed and Trust Property
Control Act and not on instruction of the beneficiary (who then has no such
rights and interest anymore).
To transfer the asset, it would be our view that the trust
should either distribute its assets and income to the beneficiary who can then
donate or dispose of it as she pleases or the trust can directly donate the
asset to another as allowed by the trust deed and the Trust Property Control
Act. In both instances a disposal for CGT purposes per para 11 Eighth Schedule
to the Income Tax Act (ITA) would occur and if there were allowance assets
recoupment of such allowances in terms of s8(4)(a) ITA may occur. The vesting
of the assets in the beneficiary is a disposal event in terms of para 11(1)(d)
and it is to a connected person (i.e. the beneficiary) the disposal is deemed to
be for proceeds equal to market value per para 38. A disposal to another trust
for no consideration would also result in such deemed proceeds at market value.
Furthermore, a true donation (i.e. pure liberality) would
result in terms of section 54 ITA; which would impose donations tax. Also, in
terms of para 20(c)(vii) Eighth Schedule, the donations tax would form part of
the base cost as calculated per para 22.
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.