Trust migration and CGT: the tax year can end before the cash arrives

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Trust migration and CGT: the tax year can end before the cash arrives

• 27 October 2026
• International Tax
• Dr Stiaan Klue

Source: Monthly Tax Update, Professor Jackie Arendse, October 2026. Webinar-on-Demand: Monthly SARS Update with Prof Jackie Arendse - October 2026

At a glance

A trust cannot determine its South African capital-gains exposure simply by comparing the date of cash receipt with its migration date. Taxpayer T v Commissioner for the South African Revenue Service required the Tax Court to examine the agreement, statutory accrual rules, residence, the deemed assessment period and the beneficiary’s entitlement. The taxpayer failed on the substantive CGT dispute and on its challenges to penalties and interest.

For tax accountants, the case demonstrates the need for a transaction chronology that distinguishes legal events from accounting entries. Signing, disposal, accrual, settlement, migration and vesting in a beneficiary may occur on different dates and have different tax consequences.

Three dates and a short assessment period

On 10 July 2017, a South African resident trust concluded a forward sale agreement disposing of shares and claims for approximately R1.873 billion. The agreement was not subject to a suspensive condition. The trust ceased to be South African resident on 13 July 2017. Delivery, payment and the resolution vesting the proceeds in its non-resident trust beneficiary occurred on 18 September 2017.

Section 9H is indispensable to understanding that chronology. The court recorded that the trust’s 2018 year of assessment ended on 12 July 2017 and that the next year began on 13 July 2017. Consequently, the fact that signing and settlement both occurred during calendar 2017 did not put them in the same year of assessment.

Client conversation trigger: For any trust changing residence around a disposal, construct the statutory assessment periods before calculating the gain or provisional tax.

Disposal, accrual and payment are separate enquiries

The taxpayer accepted the disposal timing but disputed immediate accrual of the proceeds. It argued that reciprocal performance and later settlement prevented an unconditional entitlement at signing. The South African Revenue Service (SARS) relied both on ordinary accrual principles and the deeming provision in section 24(1).

The court held that section 24(1) applied to the agreement and that the sale price was deemed to accrue when it was concluded. It also found that the trust acquired an unconditional right at that time under ordinary accrual principles. Deferring the date on which payment could be demanded did not, on these facts, make the entitlement contingent on a future event.

The section 24(1) reasoning deserves precision. The judgment considered the taxpayer’s argument that the provision should not apply to capital transactions and the discussion of that issue in earlier authority. It should be described as this Tax Court’s holding, rather than a universal proposition that every deferred capital sale is taxed at signature. A different agreement may raise genuine suspensive conditions, uncertain consideration or other statutory rules.

In particular, the judgment records the Supreme Court of Appeal’s reservation in Milnerton Estates about section 24(1) operating in the CGT context. The Tax Court nevertheless adopted its interpretation and separately upheld accrual on ordinary principles. A transaction opinion should address that hierarchy and alternative reasoning expressly, rather than cite the Tax Court’s section 24 conclusion as if the wider issue were beyond argument.

The working paper should therefore identify the asset and disposal rule, the contractual rights, any condition, the rule determining proceeds and any deeming provision. A journal recognising a receivable at settlement cannot substitute for that analysis. Nor should an accountant assume that an agreement called a “forward sale” has one inevitable tax result.

Client conversation trigger: Obtain the full signed agreement and schedules for deferred-settlement disposals; distinguish a postponed payment date from a condition preventing entitlement from arising.

Migration and beneficiary vesting did not remove the gain

The court found that the gain accrued while the trust remained South African resident. The later change to Namibian residence therefore did not shift the taxing right over that gain through the treaty argument advanced. Migration was also relevant to the assessment-period boundary under section 9H, not merely to the country in which the trustees were located.

The taxpayer’s reliance on section 25B met a separate obstacle. Capital gains in a trust are governed by the specific rules in paragraph 80 of the Eighth Schedule. Applying the Constitutional Court’s Thistle Trust reasoning, the Tax Court rejected the attempt to use the general conduit principle to pass this gain to the non-resident beneficiary. It also found that the beneficiary’s vesting occurred in the next assessment period, after the relevant accrual to the appellant.

These grounds should not be collapsed. The residence restriction and the timing defect each required analysis. A resolution dated before year-end would not, by itself, overcome a statutory restriction concerning a non-resident beneficiary; conversely, a potentially qualifying beneficiary does not cure a resolution outside the relevant period.

The accountant should retain the trust deed, residence analysis, beneficiary details, trustee resolutions and evidence of when rights vested. Migration also requires a separate review of section 9H’s deemed-disposal rules and exceptions. The fact that this gain arose under an actual sale does not justify overlooking other assets when reviewing the exit position.

Client conversation trigger: Before relying on a trust distribution to shift a capital gain, verify the beneficiary’s residence, the governing paragraph 80 requirements and the actual vesting date within the correct assessment period.

The assessment and three separate sanctions

The zero estimates were particularly difficult to defend against a transaction of this scale. The court did not accept a remission case resting on assertion. A provisional-tax file should show the transaction analysis, estimates, assumptions, advice received and the calculation actually adopted. Where an estimate is contested, that contemporaneous record is materially different from an explanation first constructed after assessment.

A simple editorial calculation illustrates the distinction between a gain and taxable income. For an ordinary trust to which an 80% inclusion rate and 45% normal-tax rate apply, a R1 million net capital gain produces R800,000 of taxable capital gain and R360,000 of tax before other relevant adjustments. This is not a recomputation of the case and should not be applied to a special trust or another year without checking its treatment. A “CGT rate” shorthand can conceal both the inclusion step and the trust’s category.

Client conversation trigger: Where a trust has a material disposal, require a signed provisional-tax computation addressing the capital gain before accepting a nil estimate.

Apply the current penalty wording separately

Sections 20 and 21 of the Tax Administration Laws Amendment Act 4 of 2026 amended sections 222 and 223. The general bona fide inadvertent error exclusion was removed from section 222(1); section 223(3)(a) now provides for remission of a substantial-understatement penalty where the understatement results from such an error. The amendments came into operation on promulgation on 1 April 2026 under the Act’s commencement rule.

A current advice file should distinguish that wording from the historic return, assessment and arguments considered in Taxpayer T. The case is useful on the absence of supporting evidence, but it is not authority for ignoring the amended structure or assuming an error excuses every behavioural category. Temporal application in a particular dispute requires separate attention.

The separate opinion-based remission route also has exacting conditions. The statutory requirements include timely full disclosure to SARS and possession, by the return due date, of an opinion from an independent registered tax practitioner based on full disclosure of the specific facts and confirming that the position is more likely than not to succeed in court. A generic advice letter or an opinion obtained only after assessment does not satisfy those timing and content requirements merely because it supports the taxpayer’s interpretation (Tax Administration Laws Amendment Act 4 of 2026, sections 20, 21 and 26, Government Gazette 54447, 1 April 2026).

The appeal was dismissed and the taxpayer was ordered to pay costs. A litigation recommendation should therefore address the underlying gain, each sanction and the evidence supporting each ground, rather than assume that losing the substantive point leaves an easy penalty-remission argument.

Client conversation trigger: Review existing penalty-remission templates against the amended sections 222 and 223, and require evidence addressing the precise statutory ground relied on.

Practitioner action checklist

Related reading: Completing a passive trust return without omitting its affairs; Establishing when a trust has nothing to report on IT3t; Correcting trust identity records and beneficiary information.

Frequently asked questions

When does a trust’s tax year end if it ceases to be resident?

Section 9H applies. In Taxpayer T the trust’s year of assessment ended on 12 July 2017, the day before it ceased to be resident, and a new year began on 13 July 2017.

Does CGT arise when the sale is signed or when the cash is paid?

In Taxpayer T the court held that section 24(1) applied and the price was deemed to accrue when the agreement was concluded, while the trust was resident. Deferred payment did not make the entitlement contingent on these facts.

Can a trust avoid CGT by vesting the gain in a non-resident beneficiary?

The capital-gains conduit argument failed for the non-resident beneficiary. Apply paragraph 80 before relying on general trust-income principles.

Build your expertise: to apply these principles in practice, explore The Tax Faculty’s Short Course in Taxation and Administration of Trusts.

About the author

Dr Stiaan Klue is Executive Dean and CEO of The Tax Faculty. He was the founding CEO of the South African Institute of Taxation (SAIT) and is the founding author of Silke on Tax Administration (LexisNexis).

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