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This was a tricky one. The couple had been donating R100k each, every year to the trust on loan account and now owed the trust R2m. Co-incidentally the commercial property was worth about R2m. Over the years they had built up significant favourable loan accounts totalling about R3m in the company. This was the structure: And this is what we wanted: We needed to do four things: Separate the property from the trading company and get it into the investment company. Shift the trading company into the trust as a subsidiary of the investment company. Shift the debt…

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A VAT registered trust owns a commercial property. We want to use s42 to slot a VAT registered company between the trust and the property, so that the trust owns the company and the company owns the property. How is this treated from a VAT perpective? I copied the entire VAT Act and pasted it into Word, then searched for section 42. I found s8(25) had the answer and it contains some surprises. s8(25)(i) If it were the business that was being disposed of as a going concern, there is no VAT. 1st surprise – it is not a zero…

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The Department of Justice recently announced that the deadline for submission of Beneficial Ownership returns for trusts is 15 November 2024. The penalty for non-submission applies to all trustees and is a R10m fine or 5 years in prison or both. If you are a trustee of any trust and you have not yet complied, then you need to act fast as there is huge international pressure on SA to enforce compliance. I have had to resign as the Independent Professional Trustee of those trusts that have not complied.  …

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I often meet with someone who registered a trust a few years ago and never used it. They now realise the benefits of building their wealth in a trust structure and wonder whether they should use the old one or create a new one. Advantages of a new one: It can be registered at the Master’s office in Johannesburg. This is the only Master’s office that we are aware of that is actually functional right now (although things may change). Also, we have a dedicated postbox in their office. So, it is much easier to deal with them than others.

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A trustee cannot act until he/she has Letters of Authority from the Master. So, the trust can do nothing until it is registered. But that usually does not matter. Why? Because you should be registering a company as well. The trust will own the company and the company will do whatever business you are planning, whether it be trade or property investment. If it’s trade, then you should probably have two companies, the trading company is owned by the property investment company and that company is to be owned by the trust. Let’s say that you want to buy a…

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I was interested to speak to a Muslim who said that he could not leave a legacy via a trust that continued generation after generation (see my book “16 Steps to Wealth”) because Shar’iah Law dictates how the assets of a deceased shall be distributed amongst his wife and children. My interest arose, because I have formed legacy trusts for a number of other Muslims and this question was never raised. This got me to reading the translation of Sahih Muslim, Book 13, the Book of Bequests. Three things jumped out at me. A Muslim is entitled to bequeath no…

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So many people are confused by this. So, here it is in as simple terms as the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act of 2022 will allow. Beneficial Ownership of Companies Every company, whether active or dormant, is required to submit a BO return to CIPC. CIPC are insisting (incorrectly) that this be done annually, before the submission of the normal Annual Return. The beneficial owners of a company that is owned by natural persons are: The shareholders Anybody else who has control over the company. The beneficial owners of a company that is owned by…

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So many of the people that I speak to express a desire to leave a legacy. Many of them have formed a trust in the belief that it will achieve just that. But it won’t. Why? Because the trust that they formed is a discretionary trust. That means that the Trustees have absolute discretion as to what they do with the trust income and trust assets as long as they benefit one or some of the beneficiaries. When the founder of the trust dies, she/he appoints a trustee or trustees to succeed her/him. Almost invariably they appoint their children. When…

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It is often suggested that, in order to avoid CGT and/or Transfer Duty, it is advisable to sell only the Bare Dominium (that is, the physical property) of a fixed property into a trust structure, retaining the usufruct (right of use) in the hands of the original owner. If the owner is relatively young, the usufruct has a high value and the bare dominium has a low value, hence the apparent avoidance of tax. What are the problems with this scheme? The tax in the long run, bearing in mind the time value of money, works out about the same,…

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So, you paid about R4 000 or less for a trust drafted by an attorney. Then you read my book “16 Steps to Wealth” and realised that you’d made a mistake. You should have spent about R11 000 and got yourself a Legacy Trust and one which did not have all the faults that yours contains. Can you change your Trust Deed? Yes. fortunately, the Master once again (after much flip-flopping) allows us to completely replace one Trust Deed with another. It remains the same trust, with the same name and registration number. And the cost? Well, we feel for…

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We have always favoured defining the beneficiaries of a trust as the client, spouse and relations within the first degree of consanguinity and the descendents of any beneficiary. This has the advantage of being both dynamic (if more children are born) and avoiding having to provide details of all the beneficiaries and their guardians if minors. However, we are finding that many people don’t understand consanguinity, so we decided to change our trust template to replace it with the spouse, parents, siblings and children of …. While doing this, Helen,  being her usual thorough self, Googled the definition of 1st…

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I had a meeting with a guy who had this great scheme to save tax. He’s an investor in residential property and was going to register various properties in his own name, his wife’s name and his childrens’ names so that each of them was in a business doing less than R1m turnover. Then he was going to register each of the businesses as a micro enterprise and pay turnover tax. Tax on R999 999 turnover = R14 120 Brilliant! It doesn’t work because of the anti-avoidance rule in the 6th Schedule of the Income Tax Act. This says that…

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Hopefully, you are in the habit of donating R100 000 every tax year to your trust or your trust owned company. But should you continue until you retire, or die? Let’s first look at the reason for making the donations. In the early days of building the property portfolio, the company will need seed capital for bond deposits and, possibly, for shortfall on bond repayments or expenses. Since you’re the one with the money, you would then have to lend it to the company and that triggers s7C interest, which may be a nuisance. By donating regularly on loan account…

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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…

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Each year, you will be making a donation of R100 000 to your trust owned company. Does it have to be declared anywhere? Yes. All companies must declare all income received or accrued in their annual tax return. Here’s how: Click on Balance Sheet. Under Current assets – Trade and other receivables enter the current balance from the TB. It will include the latest donation and previous ones as well. Under Total Equity,  enter the current balance from the TB. Click on Income Statement, then on Income Items. Under Other income type in the donation amount. Then click on…

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You own the shares in a successful company, but now you want to move it into your trust. Problem! It cost you R100 (the share capital) and now it’s worth, conservatively R4m. That means a Capital Gain of R4m when you sell it to the trust and that’s about R0,7m CGT. Is there another way? Yes, there is. It can take a bit of effort, but R0,7m is a lot of CGT, so it’s worth it. Let’s say your company is called Delta One (Pty) Ltd. Form a new company called, say, Delta One Services (Pty) Ltd. The director of…

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Wow. How important things flip flop! SARS decided in their (its?) wisdom that a pure capital gain could not pass through the conduit and be taxed in the hands of a beneficiary. They imposed penalties and interest on the ABC Trust which, they deemed should have declared the gain and paid CGT. In ABC Trust v Commissioner of the South African Revenue Services (IT 24918)(18 March 2021), however, the Tax Court overturned SARS’ decision and declared that the CGT was, in fact, payable by the beneficiary. So the answer to the title question is – Yes! For those of you…

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There is often confusion about these donations, so let’s try to clarify the whole story Every natural person can make donations totalling R100  000 each tax year free of the normal 20% Donations Tax. If you have a trust then you and your spouse must remember to make these donations every year. You do not have to have the money. You say I hereby donate R100 000 to xxxxx on loan account. In other words you then owe xxxxx the R100 000. If, as should always be the case, the trust owns a company which holds the wealth, then xxxxx…

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When SARS changed the 2022 annual tax return IT14 for companies, they got really clever. Not only do they want the details of the shareholders and when they acquired the shares. They also want the tax registration numbers of the shareholders. Now, since any well designed trust structure requires that the trust owns a company that owns the assets, when preparing the company tax return, the trust’s tax number is required. If you can’t fill that in, you can’t submit the company’s return. And, of course, once you’ve registered your trust as a taxpayer, you have to submit (hopefully Nil)…

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Let’s suppose that your parents are both 65 years old. They own shares in a (Pty) Ltd company which you run worth R5m. Cost zero their home worth R5m. Cost R3m a company which owns unbonded investment properties worth R10m. Cost R7m Should they form a trust? Let’s assume that the trading company value will increase by 5% a year on average. nominal property values will increase at, say, 9% per year on average. inflation averages 7% Now let’s suppose that at least one of them lives to be 85 years old. What will be the nominal values of their…

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