Application of Attribution Rules for Trusts
Presenters : Cheryl Howard
Overview
Attribution Rules, Deeming Provisions, and Anti-Avoidance Provisions all reference this topic. This is probably the most misunderstood tax clause for both tax practitioners and trust accountants when computing the tax charge, determining the appropriate taxpayer, and accounting for it in the trust’s Annual Financial Statements. Section 7 overrides the provisions of Section 25B, making the attribution rules the primary compulsory rule. Benefits accrue or are deemed to accrue to the donor or funder in terms of donations or interest-free or soft loans (lower than market-related interest rates) and are calculated and attributed to the donor or funder before any other vesting or distributions to beneficiaries.
Content
- The rationale behind the introduction and development of the Attribution Rules is examined.
- Determining when to apply the Attribution Rules versus other sections affecting trust taxation, namely Section 25B and Section 26A, is analyzed.
- The meaning of donation, settlement, or other disposition is defined.
- The taxpayer to whom the Attribution Rules apply is determined. The implications and applications of Sections 7C and 7D are discussed.
- A review of each Section 7 Attribution Rule, including the definition, application, and implication of each section, is conducted.
- A review of each capital gains provision (Paragraphs 68 to 72 of the Eighth Schedule), including the definition, application, and implication of each section, is undertaken.
- Examples and computations for each of the Section 7 and Paragraphs 68 to 72 of the Eighth Schedule sections are provided. The accounting treatment of the Attribution Rule in the trust’s Annual Financial Statements is examined.
- Disclosure of the Attribution Rule in the Annual Return of Income is addressed.
Competencies Developed during this Video
- Understanding the rationale for the introduction of the Attribution Rules.
- Knowing under what circumstances the Attribution Rules apply.
- Identifying to whom the Rules apply.
- Understanding each of the Section 7 sections and Eighth Schedule paragraphs affecting trusts, and how to compute the applicable tax.
- Understanding the disclosure of the Attribution Rules in the Annual Return of Income for the relevant taxpayers.