Do I still need to do a tax return if my only income received is a distribution of rental profits from a trust amounting to R60 000 a year? 2.Do i still need to do a tax return if my only income received is a distribution of capital gains from a trust amo
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
Under paragraph 2 of the 2019 notice, every natural person who,
(e)(i) is a resident and carried on any trade …
(f)(vi) subject to the provisions of paragraph 3, at the end of the year of assessment—
(aa) was under the age of 65 and whose gross income exceeded R78 150;
(bb) was 65 years or older (but under the age of 75) and whose gross income exceeded R121 000; or
(cc) was 75 years or older and whose gross income exceeded R135 300;
must submit an income tax return.
As defined in section 1(1) of the Income Tax Act, the letting of property constitutes a trade. Section 25B doesn’t deem the beneficiary to carry on the trade carried on by the trust.
Under paragraph 2(f)(i) of the 2019 notice, every natural person who is a resident and had capital gains or capital losses exceeding R40 000 must submit an income tax return. Under paragraph 1(1) of the same notice, any term or expression in this notice to which a meaning has been assigned in a “tax Act” as defined in section 1 of the Tax Administration Act, 2011, has the meaning so assigned, unless the context indicates otherwise …
For purposes of the Income Tax Act, “capital gain” means an amount determined in terms of paragraph 3 of the Eighth Schedule. Under paragraph 3(a) of the Eighth Schedule, a person's capital gain for a year of assessment, in respect of the disposal of an asset 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.
Under paragraph 80(2), where a trust determines a capital gain … in respect of the disposal of an asset in a year of assessment during which a beneficiary of that trust … who is a resident has a vested right or acquires a vested right (including a right created by the exercise of a discretion) to an amount derived, directly or indirectly, from that capital gain … but not to the asset disposed of, an amount that is equal to so much of the amount to which that beneficiary of that trust is entitled in terms of that right as consists of or is derived, directly or indirectly, from—
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that capital gain must be disregarded for the purpose of calculating the aggregate capital gain or aggregate capital loss of the trust; and
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that capital gain or the amount that would have been determined as a capital gain must be taken into account as a capital gain for the purpose of calculating the aggregate capital gain or aggregate capital loss of that beneficiary.
We submit that the capital gain, that is disregarded in the trust, that will be a capital gain of the beneficiary and therefore agree with your view – a return is required when this capital gain exceeds R40 000.