A taxpayer received “deemed interest” from a family Trust being her loan account amount which she donated back to the trust. There was no actual pay-out. In terms of section 7C, after calculating the liability for capital gains tax, she completes the IT144 return and pays SARS. Where does the taxpayer declare this “donation” on her ITR12 income tax return as the taxpayer has no other taxable income?
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
Section 7C does not result in the connected person (client as you said) receiving “deemed interest”. We also don’t understand the “loan account amount which she donated back to the trust - no actual payout” part. There is no property to donate when section 7C applies. In terms of section 7C(3) of the Income Tax Act, an amount equal to the difference between the amount incurred by that trust or company during a year of assessment as interest in respect of that loan, advance or credit and the amount that would have been incurred by that trust or company at the official rate of interest must, for purposes of Part V of Chapter II, be treated as a donation made to that trust by the person referred to in subsection (1) (a) or subsection (1A) on the last day of that year of assessment of that trust. This therefore means that this becomes a donation, for purposes of donations tax, and the tax thereon is declared and paid by filing the IT144, and the connected person pays the donation tax (if the section 56(2)(b) amount was exceeded. It is not declared on the ITR12 of the connected person.