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The Tax Tail Or The Business Dog – Are Trusts Still Relevant?

Tuesday, 12 November 2013   (0 Comments)
Posted by: Author: Dirk Kotze
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Author: Dirk Kotze (Mazars)

During the 2013 National Budget Speech Minister of Finance, Pravin Gordhan ended years of speculation and forecasting about Sars regarding trusts as tax avoidance vehicles when he announced that the current system for the taxation of trusts will be reviewed and refined in order to prevent an erosion of the tax base.

Although the Budget Speech did not provide exact details of the proposed changes, the main proposal was that the long established common law flow-through principle would be curtailed.

In terms of the flow-through principle, income flowing in and out of a trust was regarded as having retained its nature. For example, interest earned by a trust could be distributed as interest to the beneficiary, and likewise for other types of income such as rental, dividends etc. Based on the Budget Speech comments this would come to an end in a manner that treats all income as that of the trust and that any income distributed would be taxed in the hands of the beneficiary as taxable income from the trust despite the underlying make-up of said income.

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