A residential property in a trust was sold. The CGT (income distribution) will be taxed in the hands of one of the beneficiaries who is a resident. Will the capital distribution be taxable in the hands of a resident beneficiary and non-resident beneficiar
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
Paragraph 80(2) of the Eighth Schedule to the Income Tax Act deals with this. In terms thereof, where a trust determines a capital gain in respect of the disposal of an asset in a year of assessment during which a beneficiary of that trust who is a resident has a vested right or acquires a vested right (including a right created by the exercise of a discretion) to an amount derived, directly or indirectly, from that capital gain but not to the asset disposed of, an amount that is equal to so much of the amount to which that beneficiary of that trust is entitled in terms of that right as consists of or is derived, directly or indirectly, from—
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that capital gain must be disregarded for the purpose of calculating the aggregate capital gain or aggregate capital loss of the trust; and
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that capital gain or the amount that would have been determined as a capital gain must be taken into account as a capital gain for the purpose of calculating the aggregate capital gain or aggregate capital loss of that beneficiary.
You’ll notice that it specifically refers to a beneficiary of that trust who is a resident.
SARS discusses this in detail in their CGT guide – paragraph 14.11.4. Their first statement is as follows:
“The default position is that a trust must account for any capital gain or loss that arises when it disposes of an asset. As discussed in 14.11.1, para 80 provides an exception to the default position by attributing a capital gain from the trust in which it arises to a resident beneficiary. No mention is made in para 80(1) and (2) of a non-resident beneficiary, and so no attribution to such a person is possible.”
The capital gain is then ‘taxed’ in the trust.