Trust Z is a registered NPO and is also the main shareholder of company K which focuses on providing animal health products. Company K receives capital distributions from the trust which then uses these funds to train their employees (an agreement with Tr
Author: Peter Surtees
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
It’s not clear whether the trust is a PBO or merely an NPO. However, it doesn’t matter, so long as the trust is acting within its powers in making these distributions. Company K receives the distributions and uses them to train staff. Presumably company K deducts the training costs in terms of section 11(a) of the Income Tax Act. From this it will follow that the distributions will be taxable under section 8(4)(a) of the Act. Relevant tax law Section 8(4)(a). “There shall be included in the taxpayer’s gross income all amounts allowed to be deducted or set off under the provisions of sections, 11 to 20, inclusive…which have been recovered or recouped during the current year of assessment”. Calling the distributions capital doesn’t necessarily make them capital for tax purposes. But in any event, section 8(4)(a) doesn’t distinguish between capital and revenue.