Is income distributed to a beneficiary of a Trust deductible in the trust if I declare the income in the hands of the beneficiary. I have shown it on the IT12 on efiling but the system doesn't allow the distribution to be deductible on the trust. If deduc


Important:

This answer is based on tax law for the tax year ending 28 February 2017.

Answer:

The amount vested by the trustees, in terms of their discretion (obtained from their mandate in the trust deed), doesn’t qualify as a deduction. It is, in the first instance, not an expense. It is simply deemed not have accrued to the trust in the first place, unless of course it accrued in the previous year and was not vested then.   This is in terms of section 25B(2), read with section 25B(1) of the Income Tax Act.  

The amount is shown in the blocks under “Amount distributed to / vested in beneficiaries or taxable i.t.o. of s7”.  You must indicate the number of beneficiaries in the wizard, the relevant question: “Is taxable on income / capital gains distributed to / vested in beneficiaries or taxable i.t.o. s7 or par. 68 – 72 of the Eighth schedule”.  

 

Trust owned Property value at R1mil in 2017 tax year. Section 42 was done , Property transferred to PTY in exchange for shares. The market value of the Property in 2019 tax year when Section 42 was done is R3million. In the Trust books, capital gain tax is deferred and paid only if PTY sells property (2mil x 80% x 45%=R720k). If PTY sells property in 2020 tax year before the 18months period/after the 18months period who is liable for the taxes on the sale?

What is your view / interpretation?

If Property sold: (A)Before the 18months period as per Section 42, to the value of R3.5million, the trust will then have to pay income tax instead of capital gain tax and the PTY will have to pay CGT (500K x 80% x28% = R112k). (c)After the 18months period, the trust will have to pay the capital gain that was deferred R720K and the PTY will have to pay CGT (500K x 80% x28% = R112k). 

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