What are the accounting entries to reflect the new section 7C rules re Trusts. What entries would have to be made to reflect for example: interest on a donor's loan in the trust of R200 000. The deemed interest at 8.5% is less than the donation
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
The service offered by us are limited to guidance on tax related matters and doesn’t include guidance on accounting entries. But, the deeming provision of section 7C doesn’t create a transaction in the trust and we are not sure why you want to make an accounting entry in the trust’s books of account. There is also no impact on the trust capital or trust fund.
The connected person who made or provided the loan, advance or credit to the trust at an interest rate below the official rate is treated as having made a donation to that trust on the last day of that year of assessment of that trust. To the extent that the cumulative value of donations made during the year of assessment exceeds the R100 000 (section 56(2)(b) amount), donations tax will be payable and a donations tax return is required. This return, the IT144, is submitted by the individual (the connected person referred to above).