Oddly enough, SARS has not yet latched onto one way in which they can legitimately, and in my view should, attack trusts.

But let’s first answer the question. The answer? Categorically, No.

I have seen no evidence whatsoever that SARS is, or has any intention of, targeting trusts.

So, where does this common misperception come from?

Simply the fact that trusts are taxed at a flat 45%.

But a properly built trust structure ensures that the trust never earns taxable income and is therefore never taxed. So, the 45% becomes irrelevant.

Then where can SARS attack trusts?

There’s a provision in the Income Tax Act that allows income earned by a trust to flow through a conduit to a beneficiary and to be taxed in the beneficiary’s hands as if the trust did not exist.

Some people see this as a golden opportunity to minimise tax. Their trust earns income and it distributes that income to low, or no, earning beneficiaries. The tax rate becomes zero or 18% compared to the 45% if the income had stayed in the trust.

However, s80A of the Income Tax Act describes Impermissible tax avoidance arrangements:

(if) it was entered into or carried out by means or in a manner which would not normally be employed for bona fide business purposes, other than obtaining a tax benefit

Clearly, the above use of the Conduit Principle is, as its main object, to obtain a tax benefit and it therefore falls foul of s80A.

I don’t think it will be long before SARS wakes up to that one.