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The Residence of a Trust for South African Income Tax Purposes

Tuesday, 26 January 2010   (0 Comments)
Posted by: TaxFind ™
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The Residence of a Trust for South African Income Tax Purposes


Generally speaking, since 2002 South African residents are taxed on their world-wide receipts and accruals, but non-residents are taxed only on their receipts and accruals from a South African source.1 Hence, determining whether a person can be classified as a ‘resident’ has become of primary importance to taxpayers.

A trust is regarded as a ‘person’ for the purposes of the Income Tax Act 58of 1962 (‘the Act’) and is therefore liable to tax. Consequently, it has to be determined whether a particular trust is a ‘resident’ and thus liable for tax on its world-wide receipts and accruals.In addition, a number of anti-avoidance provisions apply only to non-resident trusts. Accordingly, a trust’s residence has to be established to determine whether these provisions apply.Furthermore, certain tax consequences follow when a person, which would include a trust, becomes a resident, or ceases to be a resident. How and when a trust’s residence is determined is therefore crucial.

The purpose of this article is to discuss how the residence of a trust is determined in terms of the Act. Before the provisions of the Act relating to residence can be analysed in relation to trusts, certain aspects of trust law must be considered.These principles will serve as a back drop against which the Act will be interpreted. First, certain definitions of a trust will beconsidered. Selected aspects of the legal nature of trusts, the manner in which trusts are formed, and some of the pertinent consequences of forming a valid trust will also be discussed. Different types of trusts will then be distinguished. After the relevant provisions of the Act have been analysed,they will be applied to trusts to show how a trust’s residence is to be determined.

Source: By Izelle Du Plessis (University of Stellenbosch)

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