Good day. My client is a beneficiary of a discretionary Offshore Trust (Isle of man). The funding into this Trust was from donations made from both South Africa and overseas. An Amnesty application was submitted and granted thus legitimising the transacti
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
We are not sure that you have all the facts here. It appears that the beneficiaries don’t have (or didn’t have) vested rights.
Generally, if a trust vests an asset or an amount in a beneficiary of the trust, the trustees may well be acting in accordance with their mandate, in terms of the trust deed. The trust deed may of course allow for donations to be made.
To the extent that RSA residents acquired a vested right to any amount representing capital of any trust which is not a resident, that amount must be included in the income of that resident in that year, if that capital consists of or is derived, directly or indirectly, from any receipts and accruals of such trust which would have constituted income if such trust had been a resident, in any previous year of assessment during which that resident had a contingent right to that amount. See section 25B(2A) of the Income Tax Act. The same applies in respect of capital gains (see paragraph 80(3) of the Eighth Schedule), but this probably will only apply in respect of donations made by non-residents. Remember that the income or capital gain may well have been “taxed” in the hands of the RSA donor – the person who made the election.
If the amounts vested, or donated as you say, was derived from the original donation to the trust by the person who made the election, there will be a disposal by the donor. See Regulation 4, of the 2003-Regulations, issued in terms of the Exchange Control Amnesty and Amendment of Taxation Laws Act, 2003.
The VAT409 explains an agent / principle relationship as follows:
“An agency is a contract whereby one person (the agent) is authorised and required by another person (the principal) to contract or to negotiate a contract with a third person, on the latter’s behalf. The agent in representing the principal, creates, alters or discharges legal obligations of a contractual nature between the principal and the third party. The agent therefore provides a service to the principal and normally charges a fee (generally referred to as “commission” or an “agency fee”) but does not acquire ownership of the goods and/or services supplied to or by the principal.
This agent/principal relationship may be expressly construed from the wording of a written agreement or contract concluded between the parties.
In essence, the differences indicate that the principal is ultimately responsible for the commercial risks associated with a transaction, and that the agent is trading for the principal’s account. The agent is appointed by and takes instruction from the principal regarding the facilitation of transactions as per the principal’s requirements and generally charges a fee or earns a commission for that service. A person may also act in a dual capacity, for example, where the person acting as project manager (agent for the landowner) is also the civil engineer on that project (no agency arrangement).”
We agree that, where the amounts (or assets) were vested in the one RSA beneficiary and subsequently disposed of to other beneficiaries, that there will be a donation. Judge Malan in Case IT 11282, after quoting from other precedent, said that “it follows that by law neither the shares originally bought nor the profits realised belonged to the syndicate or the appellant and were never received by it or the appellant in its or his own right or for its or his benefit but by the principal.” In this instance the syndicate and the appellant were acting in the capacity of agents to the principle. The amounts received by the agent was not received for the benefit of the agent. The agent would then be, as would a trust, merely a conduit.