I owe this one to Regine Masson, one of my 5 000 plus readers. She asked me the question that forms the title to this post.

I answered yes, both trusts have a conduit.

She then sent me a link to Cluver Markotter Attorneys. They had written an article about the Commissioner, SARS v Thistle Trust case (516/2021). Interestingly, the Tax Court in this case came to the same conclusion as me.

Then the crunch. SARS went on appeal to the Supreme Court of Appeal and won.

The court found that when the capital gain lands in the hands of the second trust, it no longer satisfies Para 80 (b)(2) of the Eighth Schedule of the Income Tax Act, because the second trust did not realise a capital gain from the disposal of an asset, but simply received the capital gain from the first trust.

Thus the Capital Gain could not flow through its conduit to the beneficiary and the trust had to pay the CGT.

Very subtle!