A client is a Trustee and Beneficiary of a trust. He has been drawing from the trust considerable amounts (approved and authorized by the trustees) that has resulted in a considerable debit loan account (in excess of R500 000). Interest free credit loan a
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
Where the trustees approved a loan to a beneficiary of the trust without requiring it to carry any interest, no tax consequences will arise for the beneficiary or the trust. It is only where the trust incurs expenditure, such as interest paid on the funds obtained to make the loan to the beneficiary that there may be tax consequences. It doesn’t appear to be the case here.
The person is benefiting, as a beneficiary, by using funds of the trust without having to pay interest in respect thereof. The trustees were duly authorised to grant this benefit to the beneficiary and the trust doesn’t vest income of the trust in doing so.