I require assistance with the following scenario: A client(natural person) is the trustee and beneficiary of a Trust. This trust is a 100% shareholder in company A and company A is a 100% shareholder in company B and a 40% shareholder in company C.
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
Please note that the fact that the individual is a trustee of the trust is irrelevant for purposes of section 7C of the Income Tax Act. What is relevant, for purposes of section 7C, is whether the individual is a connected person in relation to the trust. The same applies to the directors of the companies - you also mentioned that the directors are beneficiaries of the trust.
The service offered by us is limited to guidance. Guidance implies that sources or references relevant to your request are provided, but that ultimately your professional judgment is required to be applied to the specific circumstances.
You seem to accept that section 7C applies in respect of the loans made by the directors, as beneficiaries, to the companies and that in turn the company provides a loan to the trust. This could well be on the basis that the loans are ‘indirectly provided to the trust’ – see section 7C(1).
It is also possible that the amendment, Bill not promulgated yet, but effective date 19 July 2017, section 7C(1)(b)(ii) may apply. That could apply because the trust holds, directly or indirectly more than 20% of the equity shares of the companies.