FAQ - 28 October 2015
28 October 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. Can a distribution to a beneficiary of a trust
cause an assessed loss in the trust?
Q: If a trust makes a distribution to a beneficiary
and the distribution causes the trust to go into assessed loss, does that
entire distribution need to be added back for tax purposes, or can the trust go
into assessed loss because of that distribution?
A: We are not entirely sure that we understand the
request and our guidance may therefore not be 100% appropriate. We assume that the beneficiary doesn’t have a
vested right to the distribution, but obtained the right after a discretion
exercised by the trustees acting within their mandate.
The basic principle
is that the trustees cannot distribute a loss.
See for instance ITC 10919 where Judge Joffe said the following:
"The "word "income”
is not defined in the trust deed. The use of the words "to pay” (para 10.1.1)
and "to use” (para 10.1.2) the whole or any part of the income is indicative
that the trustees were only empowered to make a positive distribution to the beneficiaries.
It does not provide for a distribution of a nett loss.”
The distribution to
a beneficiary, depending on the trust deed and mandate of the trustees, can
only be made from income or capital of the trust. If, with ‘causes the trust to go into assessed
loss’, you mean that the distribution exceeded the receipts or accruals (not of
a capital nature) in the specific year of assessment, the amount that exceeds
the receipts or accruals will come out of capital of the trust. If however, the expenses in the year of
assessment exceed the receipts or accruals for the same year, section 25B(4)
would, as you indicate, apply.
The effect of section 25B is that the
beneficiary will, in his or her return of income, show the total amount of the
receipt or accrual that was vested, but will only be able to make a deduction
for the expenses up to the value of the amount vested. In other words the net effect is that the
beneficiary has a zero amount for tax purposes.
This excess amount is then available in the trust, but limited to the
taxable income of the trust, as a deduction – see section 25B(5). If the expenses exceeded both the amount
vested in the beneficiary and the taxable income in the trust for that year,
the excess is carried forward to the immediately succeeding year and is
available to the beneficiary in that year.
2. How do I advise my
clients on refunds from SARS?
Q: I am not able to
provide my clients information as to when they can expect their refunds from
SARS. The position used to be that normally at least within 21 days after the
assessment the refund was paid, if not earlier. I would like some clarity regarding the due
dates - i.e. why do they add 1 month to the assessed date, to get the due date,
and then to add 5 months to get the second date? Also how can I advise my
clients correctly, instead of phoning the call centre unnecessarily?
A: Refunds are dealt
with in section 190 of the Tax Administration Act
(TAA), section 102 of the Income Tax Act (ITA)
and section 44 of the VAT Act. Unfortunately, there is no
provision in these Acts that imposes an obligation on SARS to pay a refund to a
taxpayer within a specified time-frame (let alone 21 days of completion of an
The 21 days is what SARS aim for, based on their
own operational procedures. It is therefore a mistake to use the ‘due date’ to
guess when a refund will be paid by SARS.
second date on an assessment, on the other hand, is the date from which
interest will be charged by SARS if tax owing is not paid. In other words,
where the tax is not paid on or before the second date, interest is levied from
the due date (in terms of section 89(2) of the Income Tax Act.
you’ve submitted all supporting documents required by SARS for the purposes if
their reviewing or auditing of the refund, and have still not received the
refund after waiting a few months, you should first call the contact centre to
find out what the delay is, get a case number and escalate the matter via the
escalation lists we provide on our weekly newsletters.
Disclaimer: Nothing in these queries and answers 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 answers, SAIT do not accept any responsibility for consequences of decisions taken based on these queries and answers. It remains your own responsibility to consult the relevant primary resources when taking a decision.