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Trusts and Estate Planning

There’s some pretty stupid tax legislation out there that leads to taxes that SARS hasn’t a hope of collecting. Here are some of them – 1. Transfer Duty on sale of shares in a company owning residential property. If the shares in a company owning mostly residential property (a so-called residential property company) are sold, then this is deemed to be the sale of the property itself. The sale then attracts Transfer Duty. The problem that SARS has is that the only place where the sale of shares is recorded is in the Share Register, which sits on the server…

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The question of whether a trust owned company Financial Statement must be reviewed or audited has tossed me around like being in a tumble dryer. It all stated back in 2008 when the new Companies Act was published (it only came into effect in 2011). It separated companies into three main classes. Those with a Public Interest Score (PIS) of 350 or more. Those with a PIS of less than 350, and, of those, ones which were owner managed. As a high PIS implies multi-million Rands turnover, trust owned companies inevitably have a PIS of less than 350. So the…

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With times as tough as they are right now, several clients have had to approach SARS to see if they can get their tax liability reduced.
Whether it is Income Tax, VAT or PAYE that is owing, SARS will look at the taxpayer’s ability (or not) to pay, and will come to whatever arrangement gives SARS the best achievable result. In other words, they would rather have half a loaf than no bread at all.

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The easy one to understand is the Income Statement. This starts at the top with your sales, or what you like to call your sales. Me? I don’t think you’ve made a sale until the money is in the bank! But more of that later.

Then there might be an item called Cost of Sales, or Cost of Goods Sold. This is the total of all of the direct costs incorporated in the thing that you sold, so it would include, for instance, raw materials, transport of stock into your stores, consumables like paint, packaging, etc. Cost of Sales is then deducted from sales and the result is called Gross Profit. In a nutshell, this is the difference between what your stuff cost and what you sold it for, your markup, in other words.

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“will smell as sweet” – William Shakespeare – Romeo and Juliet. But what about a Stinking Corpse Lily (Rafflesia arnoldii)? If you call it a rose, will it still stink? I guess Eskom thinks it would actually smell like a rose? As in “We are not load shedding. This is load reduction” Ah! Now I understand. Thank you, Eskom, for that clarification. And how about this one? “The R10,6m allocated to SAA is not a bail out. It is a budget neutral allocation to enable the business rescue plan”. Ah! Now I understand. Thank you, Mr. Minister, for that clarification.

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So, what can I do if my company has been de-registered at CIPC? You and many others are asking this question after CIPC hit the Final De-registration button in August 2020. There are 3 possibilities Your company was not demonstrably trading and did not own fixed property at the time of de-registration – You are out of luck. It does not qualify to be restored. Your company was not demonstrably trading, but did own fixed property at the time of de-registration – it can be restored, but the process is arduous and lengthy. You can demonstrate,…

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I am amazed! I’ve just been reading an article in IOL written by one of their contributors, entitled “Why a trust requires its own bank account”. She says “Trustees and even service providers justify why separate trust bank accounts are not maintained for trusts”. I am one of those service providers. Then “Little do they know that it is in fact a legal requirement for each trust to have a separate bank account.” This statement is entirely false. It is only necessary if the trustees…

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The vast majority of South Africans should not form a family trust. They fall into five categories. So, if you fall into any one of these groups, don’t waste your time, energy and money. Don’t form a family trust if – You are not expecting to be reasonably wealthy (having income producing investments of R12m upwards) by the age of 65. You don’t care if SARS takes between 32% and 60% of your wealth when you die. You don’t care about protecting your legacy. There is no possibility of your creditors attacking your assets. You cannot afford the fees to…

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It is critical that, before buying an investment property, you do the numbers in order to determine what price you are prepared to pay. If you do them properly, you will realise that finding a good buy is harder than you expected, but that simply forces you to buy with your head and not your heart. Here’s how I did it when I was in the buying mode of my property investment career. You need a modicum of Excel skills because you must build a model into which you can plug the numbers, and see what happens to the monthly…

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If you think that the value of your investment properties is relevant, then your thinking could well be skewed. The only number that really matters is the net rental income that each of the properties produces. And it is the net rental income from which you would calculate the value. Having said that, it is possible that you could sell the property for more than its real worth (based on rental), and that implies that it is a bad investment that should be disposed of, and replaced by one that gives a better return. This typically applies at the top…

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When your trust is to own your trading and investment companies, you need to carefully consider how they should all be interconnected. Most advisors will tell you that the trust should own a holding company that in turn should own the trading and investment companies like this – But that is not ideal, because, although the trading company can declare its excess after tax profits to the holding company as dividends, the holding company then has to lend the money to the investment company so that it can buy more investment assets. Here’s a much better way –…

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In order to protect its assets from your creditors, your trust needs to be discretionary during your lifetime, but when you die, this is no longer necessary, and other considerations kick in. Because you built the wealth in a trust, not only did you protect it from your creditors, but you also protected it from the huge bite that SARS would have taken on your death, and from the subsequent bites that SARS would take on the death of each of the following generations. So this won’t happen – What you want is for the trust income to be…

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There are two types of special trust defined in the Income Tax Act

A special trust type A is a trust set up solely for the maintenance of a person, or persons, who must be related to each other, and with disabilities that prevent them from earning sufficient income to support themselves. A subset of this type of trust is a curatorship trust, which is administered by a curator, who is usually a legal practitioner appointed by the courts.

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We have eleven official languages in South Africa, but the lingua franca is clearly English. Not surprising, then, that those of us for whom English is our home language, tend to be critical of the pronunciation, or choice of words, of those whose home language is one of the other ten. But stop for a moment and think it through. Can you speak that person’s language? Fluently? Correctly? I doubt it. So what right do you have to scoff at them? Rather learn to listen to what is being said. The person is endeavouring to communicate with you, and communication…

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Shareholders and directors commonly draw money from their company without paying PAYE. Their bookkeeper will debit their loan account and these loans typically grow over time to quite significant amounts. When you owe money to your company, you should be charged interest at least at the official rate (which is 1% above the Repo Rate). This interest needs only to be a book entry – Debit Loan Account, Credit Interest Received, and the entry should ideally be done monthly. However, to simplify things, the bookkeeper could be instructed to charge interest on the year end balance at the year end…

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Why would you want to buy an old shelf trust with an equally old shelf company? Well, every natural person is allowed to make donations totaling R100 000 per tax year free of Donations Tax. These donations should be to a company which is owned by a trust, because that’s the way the trust’s affairs should be structured. Clearly, you could not have donated to a company that didn’t exist at the time, which is why you need an old company, and then, you don’t want the company to be worth anything when you sold it (or donated it) to…

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Many people worry about what will happen to their family trust when they die, but interestingly, it is on death that the trust proves its greatest benefits. It is, after all, a device in which to build (and protect) wealth so that when you die, there are no taxes to pay and the wealth that you built during your lifetime is there as a legacy for your family and for future generations. So let’s look first at what doesn’t happen when you die – the trust pays no tax as a consquence of your passing. Compare this to the 35%…

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