I have a client who has an offshore trust that has sold a property and they want to wind down the trust. In 2003 the father of this family went amnesty and thereafter became liable to be taxed in SA on that income and gains in this trust from the point of
Important:
This answer is based on tax law for the tax year ending 28 February 2004.
Answer:
It was dealt with in section 4 of the Exchange Control Amnesty and Amendment of Taxation Laws Act, 2003.
The person (the donor (or the deceased estate of a donor) in relation to a discretionary trust which is not a resident), was able to elect that any foreign asset contemplated below, which was held by that discretionary trust on 28 February 2003, must be deemed to be held by that person.
It applied in respect of a foreign asset of a discretionary trust which—
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was acquired by that discretionary trust by way of a donation made by the person referred to above;
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has been wholly or partly derived from any unauthorised asset or from any amount not declared by that donor to SARS as required by the Estate Duty Act, 1955, or the Income Tax Act, 1962; and
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has not at the time of that election vested in any beneficiary of that discretionary trust.
Where a person has made an election as contemplated above in relation to a foreign asset that person is deemed to have held that foreign asset until that foreign asset is disposed of by that discretionary trust to any other person.
We submit that the words “must be deemed to be held by that person” in fact means that the asset, for tax purposes, was then, or would have been ‘owned’ by the person at the time of death. The deceased was then treated as having disposed of this asset at date of death, we submit to the trust. That would have resulted in an adjustment in the base cost.
The “rule (oversight in the legislation) … that no tax applies to a beneficiary (RSA resident beneficiary) of an offshore trust who received a capital gain distribution from that trust in the same year that the asset was sold and distributed by the trustees to them” is an interpretation, reasonably arrived at and we are not aware of any intention of SARS to amend the Act in the regard.