We have a client who is a trust. Our Client “Trust B”(discretionary trust) is a beneficiary of a Trust, “Trust A”(discretionary trust). Trust A transferred shares it owned to Trust B. Where after Trust A ceased to be. The question now is. Trust A realise
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
It is necessary to deal with the tax consequences of the distribution, by trust A of the asset, the shares in trust B.
In terms of paragraph 11(1) of the Eighth Schedule to the Act, “a disposal includes:
(d) the vesting of an interest in an asset of the trust in a beneficiary; …”
In terms of paragraph 13(1) of the Schedule, the time of disposal of an asset by means of
(iiA) the distribution of an asset of a trust by a trustee to a beneficiary to the extent that the beneficiary has a vested interest in the asset, the date on which the interest vests;
Under paragraph 80(1), where a capital gain is determined in respect of the vesting by a trust of an asset in a trust beneficiary, that gain
-
must be disregarded for the purpose of calculating the aggregate capital gain or aggregate capital loss of the trust; and
-
must be taken into account for the purpose of calculating the aggregate capital gain or aggregate capital loss of the beneficiary to whom that asset was so disposed of.
The effect of this is that trust will have been ‘taxed’ on the capital gain and will have a base cost of the market value at the date of vesting.
The capital gain that arises when trust A disposes of the asset can, in terms of paragraph 80(2), be attributed to the beneficiaries. This follows the decision by the trustees to vest the gain.
We don’t understand the reference to trust B in the last two sentences. It is unlikely that trust B will be a beneficiary of trust A – you said that trust A is a beneficiary of trust B.