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CGT implications of a sole beneficiary’s renunciation of all her rights to a trust’s assets & income

Tuesday, 03 March 2015   (0 Comments)
Posted by: Author: SAIT Technical
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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.



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