If a trust loans amounts to beneficiaries of the trust and does not charge interest, will this result in donations tax? The loan amount is R7 million and the beneficiaries are not SA taxpayers (they live overseas).
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
We accept that the trustees were acting within their mandate in granting the loans. We accept that the minutes of the meeting where the trustees approved the making of the loan and its conditions may well be the only available document, in other words, that no agreement between the parties relevant to these loans was required. The fact that the loans didn’t carry interest would then appear from the minutes.
In the Abraham Krok Trust v SARS case, Judge Nugent said “a donation that is made by a trustee to the beneficiary of a trust would ordinarily attract donations tax. But such a donation is exempted from the tax by s 56(1)(l),5 which exempts ‘property which is disposed of under a donation if such property is disposed of under and in pursuance of any trust’.”
We accept that no donation arises under section 31 of the Income Tax Act.