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Tax implications of terminating a trust
- 19 October 2020
- Capital Gains Tax Implications of Trusts
- Piet Nel
Background
A trust is terminated by the Master after all the trust property was vested and distributed to the beneficiaries.
Is it necessary to pay provisional tax for the trust and does everything vest in the beneficiaries in the year that the trust terminates?
Answer
When the trustees exercise their discretion to vest the asset, in terms of paragraph 80(1) of the Eighth Schedule to the Income Tax Act, the capital gain that arose in consequence of the vesting by the trustees of the asset (the farm) will then be disregarded in the trust and will be taken into account in calculating the aggregate capital gain of each of the beneficiaries. That of course assumes that all the beneficiaries of the trust are residents of the RSA.
The same will apply to normal income that accrued to the trustees – section 25B. If the trust then doesn’t have a taxable income for the period of assessment, a nil estimate can indeed be submitted.
If the beneficiaries had vested rights to the trust property and income, then no IRP6 was required, or will have to be submitted on termination. The ITR12T is however required.
Webinar Commentary
Further webinar commentary on Provisional tax requirements and principles related to trusts can be accessed here.