A Family Trust (Trust A), as a beneficiary of another Trust, (Trust B) received income distribution from Trust B. May Trust A now distribute this income further to yet another beneficiary/trust/company? May Trust A now distribute this income further to an
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
Whether the trust, the beneficiary of another trust, can distribute income received as a distribution from another trust’, is a question that must be answered with reference to the trust deed of that trust.
The tax event, so to speak is vesting (and not distribution).
The general rule is found in section 25B(2), read with section 25B(1) and which is subject to section 7. For purposes of the guidance that follows we accept that section 7 doesn’t apply – no donation, settlement or other disposition, such as an interest free loan.
In terms of section 25(2) of the Act, where a beneficiary has acquired a vested right to any amount, derived for the immediate or future benefit of that beneficiary, in consequence of the exercise by the trustee of a discretion vested in him or her in terms of the relevant deed of trust, that amount must be deemed to have been derived for the benefit of that beneficiary.
That amount is then “deemed to be an amount which has accrued to that beneficiary” for purposes of section 25B(1), and is then NOT deemed to be an amount which has accrued to that trust.
Paragraph 3:
A person's capital gain for a year of assessment, in respect of the disposal of an asset –
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during that year, is equal to the amount by which the proceeds received or accrued in respect of that disposal exceed the base cost of that asset;
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in a previous year of assessment, other than a disposal contemplated in subparagraph (c), is equal to –
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so much of any amount received by or accrued to that person during the current year of assessment, as constitutes part of the proceeds of that disposal which has not been taken into account –
(aa) during any year in determining the capital gain or capital loss in respect of that disposal; or
(bb) in the redetermination of the capital gain or capital loss in terms of paragraph 25(2); or
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so much of the base cost of that asset that has been taken into account in determining the capital gain or capital loss in respect of that disposal as has been recovered or recouped during the current year of assessment, otherwise than by way of any reduction of any debt owed by that person, and which has not been taken into account in the redetermination of the capital gain or capital loss in terms of paragraph 25(2); or
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(iii) the sum of –
(aa) any capital gain redetermined in terms of paragraph 25(2) in the current year of assessment in respect of that disposal; and
(bb) any capital loss (if any) determined in respect of that disposal in terms of paragraph 25 for the last year of assessment during which that paragraph applied in respect of that disposal; or
(c) in a previous year of assessment that has been reacquired as contemplated in paragraph 20(4), is equal to any capital loss determined in respect of that disposal.
The phrase “capital gain”, as it is used in the Eighth Schedule, therefore doesn’t include an amount that is treated as a capital gain.