A non-resident (beneficiary and trustee) donates R10 million to a Trust in year one. The Trust uses the funds to acquire a property. In year 5, the property was sold for a profit of R2million which was then also distributed to the beneficiaries in year 5.
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
Donations tax is not the issue, if the capital gain is vested in the beneficiary (and it matters not if the beneficiary is tax resident in the RSA) or disposed of under and in pursuance of the trust (in accordance with the trust deed). The conduit principle, for purposes of normal tax as far as capital gains are concerned, was codified into the tax law in paragraph 80 of the Eighth Schedule to the Act. From the facts we accept that the beneficiary is tax resident in the RSA and that the trust is not tax resident in the RSA. We don’t agree with your view. We submit that the tax consequences for the resident is to be determined under paragraph 80(3) and we copied it below for ease of reference: Where during any year of assessment any resident acquires a vested right to any amount representing capital of any trust which is not a resident, and – (a) that capital consists of or is derived, directly or indirectly, from an amount – (i) determined as a capital gain of that trust; or (ii) which would have been determined as a capital gain of that trust had that trust been a resident, in any previous year of assessment during which that resident had a contingent right to that capital; and (b) that capital gain or the amount that would have been determined as a capital gain has not been subject to tax in the Republic in terms of the provisions of this Act, that amount must be taken into account as a capital gain when determining the aggregate capital gain or aggregate capital loss of that resident in respect of the year of assessment in which that resident acquired that vested right.