Trust C holds the shares in Company B. Company B holds the Shares in Company A. In company A there is a credit loan account to Piet who is also a beneficiary of Trust C. Will the loan in Company A trigger the 7C legislation for Companies?
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
Section 7C(1), in its amended form, reads as follows:
This section applies in respect of any loan, advance or credit that—
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a natural person; or
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…,
directly or indirectly provides to—
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… ; or
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a company if at least 20 per cent of—
(aa) the equity shares in that company are held, directly or indirectly; or
(bb) the voting rights in that company can be exercised,
by the trust referred to in subparagraph (i) or by a beneficiary of that trust.
You didn’t indicate if the individual is a connected person in relation to the trust – we assume so.
You must then determine whether the trust, or a beneficiary of the trust, holds shares (20%) or can exercise voting rights in the company. Relevant to this requirement are the words used in the section – it refers to “equity shares in that company … held, directly or indirectly”.