We manage a trust company and act as trustees on special trusts. One of our beneficiaries was injured and received a R15 million payout from the Road Accident Fund. The award included an amount of 7.5% of the total award i.e. R1,125,000 As per the court o
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
It is common for the Road Accident Fund to now require that the compensation be paid into a trust. Section 10(1)(gB)(iv), of the Income Tax Act, exempts from normal tax “any … compensation paid in terms of section 17 of the Road Accident Fund Act, 1996 (Act No. 56 of 1996)”.
We then agree that the R1 125 000 would relate to future expenses. The person providing the service will then, once the service is rendered, have an accrual in respect of the fee charged. As this person is not a beneficiary of the trust, it will make no difference if this is paid from the trust capital, the original award, or interest accrued on the capital invested. Because the award is free from tax, the trust would not need to make a section 24C deduction.