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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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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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Generally, when you appoint an Independent Professional Trustee, you can dump them anytime you want, because the Trust Deed says that the majority of trustees can remove a trustee (except that they cannot remove you). However, what if there are only 2 trustees, you and the professional? Again, this should not be a problem as long as the trust deed allows you to appoint additional trustees. You will simply appoint a new professional and the two of you will remove the first. Of course, the simplest way is to ask the professional to resign, which any self respecting professional would…

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There are so many things that can go wrong with a trust deed that I devoted a whole chapter to this in my book “16 Steps to Wealth” Here are a few of them – The founder makes a donation of R100 to form the trust, but that means the Trustees are obliged, in terms of the Trust Propert Control Act, to open a bank account and deposit the R100. Because this hardly ever happens, then, in my view, the trust was never…

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It’s not unusual to have a trust or two lying around doing nothing. Especially if you were persuaded to buy three trusts when you really only needed one. So, I occasionally get asked to quote to de-register a trust. Here’s my advice. Distribute all remaining trust assets (if any) to beneficiaries and keep evidence of having done so. Submit your Beneficial Owner return to the Master. We’re still not confident about how to do this, but it will soon become routine. Then, forget the trust and ignore SARS. What will happen? The trust will gather dust in some Master’s office.

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Let’s take a simple scenario that I come across almost daily. You own a R1,5m property and would prefer it to be owned by the company that your trust owns. It cost you R1m. We look at the cost of the transfer and it adds up CGT about R82 000 Transfer Duty R12 000 Conveyancer’s fees about R27 000 That’s a whopping R121 000 You have the money available, but is it worth it? (a) You don’t do it and you die in, say, 40 years’ time. Assume inflation averages 7,2% and there’s no change in the tax laws. Value…

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The first change is not actually a change, but the result of my having finally come around to the fact that trusts must register as taxpayers. Here’s the effect – It is not a simple job any more as we also have to appoint a representative, a process that SARS has made unnecessarily difficult. We charge R2 800 for this registration. Trusts are not automatically provisional taxpayers. Annual tax returns must be submitted despite their being Nils. We charge R720 if there were no distributions. The next change is the result of the Taxation…

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It is a general rule in tax that transactions between connected persons are deemed to be at market value. Typically, this arises when someone sells their fixed property or shares in a private company to their trust. The question then arises “Who must do the valuation?” and the Income Tax Act and Transfer Duties Act are silent in that regard. They simply say that SARS may challenge any valuation. This means that the seller can determine the market value. And that raises the question “On what basis must the asset be valued?” Generally, companies are valued on their last signed…

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I have been wrong all this time! The answer is yes, a trust must register as a taxpayer even though it will never receive taxable income. I dug this up while referencing my upcoming book 16 Steps to Tax Wisdom. Here’s why – s67 Registration as taxpayer.—(1)Every person who at any time becomes liable for any normal tax or who becomes liable to submit any return contemplated in section 66 must apply to the Commissioner to be registered as a taxpayer in accordance with Chapter 3 of the Tax Administration Act s66 Notice by Commissioner requiring returns for assessment…

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Would you believe? The Master of the High Court offices are overwhelmed with a backlog due, they claim, to Covid. And now, with load shedding taking about 4 hours out of most working days, they don’t have generators. So what do they do during those four hours? Well, we do know that they close their doors and allow no members of the public in for follow-ups etc. Then, knowing their general attitude towards their work, I doubt that they do anything except scroll through their favourite social media app. And so, we wait, and wait, and wait.

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Why would you want to form a trust for your aged parents? Firstly, here’s why you wouldn’t. The cost of transferring assets into a trust structure may be prohibitive. They can include – Transfer Duty Capital Gains Tax Securities Transfer Tax Conveyancer’s fees Depending upon the remaining life of the second dying of the parents, the protection from taxes on death of the gain in value of the assets may not warrant the above costs Their estate may not be big enough, bearing in mind the allowances for CGT and Estate Duty on death. Then why would you? The above…

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As part of its efforts to (unsuccessfully) avoid grey listing, South Africa, at the end of 2022 promulgated the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act. This new Act amended 3 other Acts, amongst them, the Trust Property Control Act. Here’s what it did. Definition of “beneficial owner” (of the trust property) includes amongst others, the Founder, the Trustees and any beneficiary referred to by name. 11(1) The trustees are required to (e) record the prescribed details relating to accountable institutions which the trustee uses as agents to perform any of…

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As accountants we are very much aware that loans to shareholders by their company need to bear interest, otherwise the interest is deemed to be a dividend and subject to Dividends Withholding Tax. But what I missed until recently is that, because trusts are defined as “persons” in the Income Tax Act, this also apples to loans by companies owned by a trust to the trust itself. Normally, this would never happen as, why would the trust need a loan? However, it did come up and I had to go to the Act s64E(4)(a) and (b) to unscramble my head.

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Here are some Do’s – If we didn’t form your trust, then it was probably formed with a donation of R100. You MUST open a bank account and deposit that R100, otherwise your trust was not actually formed. Keep a copy of the first bank statement on file. Once the R100 has been used up in bank charges, close the bank account. You don’t need it. If we didn’t form your trust, then the trustees are probably required, in terms of the Trust Deed, to hold annual meetings. Make sure that they do and that minutes are kept. Otherwise they…

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No. Only shareholders which are companies are exempt. Having said that, if company A is a beneficiary of a trust which owns company B and company B declares a dividend, can the dividend flow through the trust to company A using the Conduit Principle thereby avoiding the DWT? An interesting question. I’m not a tax specialist, but by the way I read s41 and then s1 of the Income Tax Act, in order to be exempt the dividends have to be received by a company which is, either directly or indirectly, a 70% or more shareholder in the company…

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This question arises because it only takes about a week to form a company but 6 to 8 weeks to form a trust. You want your trust to own this new investment company, but only the company has been formed. The trust is still in process at the Master’s office. The end of February is approaching and you and your spouse each want to make the R100 000 donation to the company on loan account before the tax year ends. If you miss the deadline, that’s R200 000 loan account missed. So, you make the donation and the trust is…

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