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A special dispensation: SARS ruling about special trusts

Thursday, 24 January 2019   (0 Comments)
Posted by: Author: Louis Botha
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Author: Louis Botha (Cliffe Dekker Hofmeyr)

In recent times, the issue of mental health and the importance of caring for vulnerable persons with mental illnesses has become more prominent. Of course, the effect of mental illness on persons may differ depending on the nature of the illness. In the case of very serious forms of mental illness, a person may not be able to look after their own affairs any longer. From a tax perspective, the Income Tax Act, No 58 of 1962 (Act), makes provision for the creation of so-called special trusts, where the trust is created for the benefit of a person who cannot take care of his own affairs due to a disability (Beneficiary), including as a result of a serious mental illness.

The trustees of such a trust would then have to administer the assets of the trust in favour of the Beneficiary. In order for a trust to become a special trust, it would have to register with SARS as a special trust. Without delving into detail, the benefit of the special trust dispensation is that in some respects the tax considerations for a special trust, are similar to the tax considerations for an individual, as opposed to the tax considerations that apply to ordinary trusts. For example, the income that accrues to or is received by a special trust during a year of assessment, is calculated with reference to the tax tables applicable to individuals. A special trust is not taxed on income at the rate of 45%, as is the case with ordinary trusts. It also pays capital gains tax on disposals at the same rate as individuals, where the maximum effective rate is currently 18%.

On 28 June 2018, SARS released Binding Private Ruling 306 (BPR 306), which deals with the donation of funds to a special trust.

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