The capital gain of a resident trust distributed to a non resident beneficiary is not attributed to the beneficiary in terms of Para 80(1) & (2) & is taxed in the trust. What is the tax treatment of the following please: 1. Trust capital so distributed to
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
We accept that the trust capital, that you refer to, will either be the original capital (property) acquired by the trust or amounts that were subject to tax in the trust in a previous year. We agree with your view, section 25B(2) (and (1)) or paragraph 80 would then not apply and the beneficiary, resident or not, declare it in the ITR12 as an mount not subject to tax (in the RSA).
Where the amount arose from a receipt or accrual to the trustees and it was, in the same year of assessment, vested in a beneficiary not resident in the RSA, then we agree with your view. The trust is tax neutral and if, the source is in the RSA and the RSA has a taxing right, it will be included in the income of the non-resident beneficiary. The actual distribution is not the tax event – vesting is.
You are correct that paragraph 72 applies to a person who was a resident of the RSA at the time the donation, etc. was made. The ‘taxing’, as you say, in the hands of the trust happens where the beneficiary is not a resident of the RSA. The amendment to paragraph 72, in 2005, made it “clear that attribution can occur in respect of an amount that would have constituted a capital gain in the hands of a non-resident had that non-resident been a resident.”