Background: I have a client who has a trust. He wishes to distribute part of the investment in the trust to the beneficiaries annually, using the conduit principle, where each of the four beneficiaries declare a portion of the capital gain on their individual tax returns. But one of the beneficiaries is a minor child of 15 years of age. Both her parents are deceased and she lives with and is taken care of by a step mother, who may or may not be her legal guardian. Question: Should the minor child be registered as a taxpayer?
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
We need to make a comment about the facts. We don’t know what you mean when you say the “client … has a trust”. The conduit principle was codified into the Income Tax Act, but the decision to distribute will follow a vesting event. We suspect the trust is a discretionary trust, and this distribution must be done by the trustees in terms of their mandate obtained from the trust deed.
If the trustees are duly authorised to do so, and then in terms of paragraph 80(1) of the Eighth Schedule, where a trust vests an asset in a beneficiary of that trust … who is a resident, and determines a capital gain in respect of that disposal … ——
(a) that capital gain must be disregarded for the purpose of calculating the aggregate capital gain or aggregate capital loss of the trust; and
(b) 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 the beneficiary to whom that asset was so disposed of.."
The beneficiary, the minor, will indeed then have to submit a return of income and will have to be registered as a taxpayer (unless the capital gain is less than R40 000).