Guide to the Taxation of Special Trusts (Issue 3)

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Guide to the Taxation of Special Trusts (Issue 3)

• 10 September 2020
• Trust types and income allocations
• SARS

1. Purpose

This guide has been prepared to assist those involved with special trusts to gain an understanding of the provisions of the Act relating to such special trusts, with particular reference to the income tax and CGT provisions. A brief summary of other taxes relating to special trusts has also been included. This guide focusses mainly on the tax implications for a special trust and not on the tax implications for its beneficiaries.

2. Background

Unlike conventional trusts which are taxed at a flat rate of tax, a special trust is taxed on the same sliding scale applicable to natural persons. The Act makes provision for two types of special trust in section 1(1) which will be referred to as type-A and type-B trusts. In essence a type-A trust is created for a person or persons having a disability while a type-B trust is created on the death of the testator and can subsist only while it has a minor as a beneficiary. The distinction between a type-A trust and a type-B trust is important because a type-A trust qualifies for specific relief from CGT which is not granted to a type-B trust. The definition of “special trust” in paragraph 1 applies for CGT purposes only (see 6.4).

3. Trusts under South African law

3.1 Types of trust

3.1.1 Ownership and bewind trusts

Under South African common law there are two types of trust:

• An “ownership trust”, under which the founder or settlor transfers ownership of assets or property to trustees to be held for the benefit of defined or determinable beneficiaries of the trust.
• A “bewind trust”, under which the founder or settlor transfers ownership of assets or property to beneficiaries of the trust, but control over the property is given to the trustees.

3.1.2 Curatorship trust

A “curatorship trust” is one in which the trustees administer the trust assets for the benefit of a beneficiary that lacks the capacity to do so, for example, a curator placed in charge of a person with a disability.

3.2 Trust Property Control Act

The Trust Property Control Act defines “trust” in section 1 of that Act as follows:

“ ‘[T]rust’ means the arrangement through which the ownership in property of one person is by virtue of a trust instrument made over or bequeathed—

(a) to another person, the trustee, in whole or in part, to be administered or disposed of according to the provisions of the trust instrument for the benefit of the person or class of persons designated in the trust instrument or for the achievement of the object stated in the trust instrument; or

(b) to the beneficiaries designated in the trust instrument, which property is placed under the control of another person, the trustee, to be administered or disposed of according to the provisions of the trust instrument for the benefit of the person or class of persons designated in the trust instrument or for the achievement of the object stated in the trust instrument,

but does not include the case where the property of another is to be administered by any person as executor, tutor or curator in terms of the provisions of the Administration of Estates Act, 1965 (Act No. 66 of 1965);”

The above definition therefore includes an ownership trust and a bewind trust.

3.3 Master of the High Court

Section 4 of the Trust Property Control Act provides that the trust deed of a trust must be lodged and registered with the Master of the High Court. Although the registration of a trust deed with the Master of the High Court does not impact on the legality of the trust deed, section 6(1) of the Trust Property Control Act states that no person may act as trustee without proper authorisation from the Master.

This article first appeared on sars.gov.za

Click here to read more or visit SARS's website for more information.

Webinar Commentary:

For an update on the latest legislative amendments and court rulings access our next Monthly Tax Update presented by Prof Jackie Arendse here.Further webinar commentary on Trust types and income allocations can be accessed here.

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