The taxation of trusts in South Africa with emphasis on the capital gains tax and estate planning implications of various transactions concluded by a trust.

Abstract

For years trusts have been at the fore front of speculation and scandal. As an effective tool in estate planning, trusts have allowed many to structure their estates in a way which is the most beneficial for themselves and also saves on taxation. In light of the continuous use of trust in estate planning, the taxation of trust have recently come under fire as a tool used by many to avoid tax and to hide assets. In the 2013 budget speech Treasury announced a desired to tighten the reins on the taxation of trust so as to weed out abuse and misuse. One proposed way to achieve this is the doing away of the conduit principle. This has both normal tax and capital gains tax implications. The aim of this dissertation is to investigate how trusts are taxed in South Africa, more specifically the capital gains tax implications of transactions concluded by a trust, when a trust is used as an estate planning tool. This will enable us to identify the most viable way to structure one’s estate and to hold assets, from both a normal tax and capital gains tax perspective. In conducting my research the relevant sections of the Income Tax Act 58 of 1962 will be examined. The implications of those sections on transactions concluded by a trust will also be discussed. On account of the fact that South Africa has developed its capital gains tax legislation based on the legislation used in Australia, an analysis of the recent development of the taxation of trusts in Australia will be looked. This will be done in order to identify any possible lessons South Africa may take away from these developments in Australia. What the research has shown is that despite Treasury’s push to impose stricter legislation in respect of the taxation of trusts, trusts will still have a place in estate planning. The advantages which the use of trusts offer seem to out way the consequences which come with Treasury’s proposed change. As far as the lessons to be learnt from Australia. South Africa has currently followed in Australia’s shoes with the implementation of the new detailed tax return for trusts. Alternatives to the doing away with estate duty and the conduit principle should also be looked at, for instance a more refined conduit principle which applies to specific tax types as Australia has done. May be what needs to be looked at are the problems experienced by Australia and ways in which South Africa can avoid experiencing the same problems.