Can a capital loss in a trust from the sale of a property/shares/unit trusts etc. A trust is able to distribute a capital gain to the beneficiaries and it is taxed in their hands as a capital gain (retains its form). But now if there is a capital loss...
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
We are not sure why you believe it is possible for a trust to ‘distribute a capital loss’. The trust deed would normally only allow for income or capital to be distributed or vested. Judge Joffe, in ITC 10919, stated that the use of the words ‘income’ and ‘pay’ (we can add distribute to that) in the trust deed was “indicative that the trustees were only empowered to make a positive distribution to the beneficiaries. It does not provide for a distribution of a nett loss.”
As you have indicated, paragraph 80 of the Eighth Schedule to the Income Tax Act, only deals with ‘capital gains’ – in other words, not with capital losses. In paragraph 14.11.1 of the SARS CGT guide (issue 6), it is stated that “these rules attribute only capital gains; capital losses are never attributed, and thus will always remain in the trust.”
In paragraph 14.9.3, of the SARS CGT guide, it is stated that a “capital loss arising on vesting of a trust asset in a beneficiary under para 11(1)(d) remains in the trust, since no provision is made for the attribution of capital losses, whether to a beneficiary or a donor.”
It then that a “capital loss arising from the vesting of an asset in a beneficiary may be set off only against capital gains arising from transactions with that same beneficiary (para 39).”