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The South African taxation of trusts: Recent developments

28 September 2016   (0 Comments)
Posted by: Authors: Robert Gad and Alexa Muller
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Authors: Robert Gad and Alexa Muller (ENSafrica)

The Davis Tax Committee’s (“DTC”) first interim report was released in July 2015 (the “First Report”) and made various significant recommendations to the Minister of Finance regarding (among other topics) the taxation of trusts in South Africa.

Subsequent to the release of the First Report, various stakeholders and members of the public submitted comments to National Treasury to express their concerns in relation to the far-reaching consequences that may arise, particularly in relation to the taxation of trusts, should the recommendations of the First Report be legislated.

On 24 August 2016, the DTC released its second interim report on estate duty (the “Second Report”), which submits revised proposals to the Minister of Finance as relates to, inter alia, the taxation of trusts.

Two of the most notable proposals contained in the First Report were:

  • the recommendation that the long established “conduit pipe” principle applicable to the taxation of trusts be abolished (in essence, such proposal recommended the removal of legislative provisions in terms of which trust income can be taxed in the hands of beneficiaries or a donor at lower marginal rates, as opposed to the flat higher rate of tax in a trust)
  • the First Report further stated as follows:

“There would be numerous complexities associated with implementing a form of transfer pricing adjustment to deem a return on interest-free loans between [South African] registered trusts and [South African] taxpayers. The DTC concurs with the recommendations of the Katz Commission that this be avoided.”

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