A trust earns rental income from about twenty properties that are registered in the name of the trust. One of the properties is the primary resident of the founder of the trust. Given that this is a primary residence, does the s7c exclusion apply re the f
mportant:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
The fact that rental is payable is irrelevant with regard to section 7C. For ease of reference we copied the relevant part of section 7C(5)(d) here:
Sections 7C(2) and 7C(3) “do not apply in respect of any amount owing by a trust during a year of assessment in respect of a loan, advance or credit referred to in subsection (1) if … that trust used that loan, advance or credit wholly or partly for purposes of funding the acquisition of an asset and—
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the person referred to in subsection (1)(a) or the spouse of that person used that asset as a primary residence as contemplated in paragraph (b) of the definition of ‘primary residence’ in paragraph 44 of the Eighth Schedule throughout that year of assessment; and
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the amount owed relates to the part of that loan, advance or credit that funded the acquisition of that asset…”
from this it is clear that it would only apply in respect with respect and to the extent that the trust used the loan, advance or credit wholly or partly “for purposes of funding the acquisition of the asset” – the asset being the ‘primary residence’ as defined above. The purchase would be the acquisition of.
We are not sure what is required with regard to the question “can the trust charge the founder rent for use of the property as his primary resident”. The trustees can decide to allow someone, other than a beneficiary, to use an asset of the trust without charging rent, if they are mandated to do so in terms of the trust deed. The fact that this person is the person who advanced the money to the trust is irrelevant. We have already said that it is also not relevant to section 7C.