Newsflash - SARS 2013 Budget Review: Change the way that trusts are taxed ? 11/09/2013 (Deon Welz - Miltons Matsemela)

Currently, a trust which makes a capital gain can avoid paying the high rate of capital gains tax which applies to trusts by distributing the capital gain to the individuals who are beneficiaries of
the trust so that the gains are taxed in the hands of the beneficiaries at the lower tax rates which apply to individuals. This is in accordance with the flow-through principal that is applicable to trusts. The measures proposed by SARS would see an end to this as far as trusts for major beneficiaries are concerned. Minor beneficiaries and disabled beneficiaries will apparently still benefit from the current position.

11 Sep 2013

 

Currently, a trust which makes a capital gain can avoid paying the high rate of capital gains tax which applies to trusts by distributing the capital gain to the individuals who are beneficiaries of the trust so that the gains are taxed in the hands of the beneficiaries at the lower tax rates which apply to individuals. This is in accordance with the flow-through principal that is applicable to trusts. The measures proposed by SARS would see an end to this as far as trusts for major beneficiaries are concerned. Minor beneficiaries and disabled beneficiaries will apparently still benefit from the current position.

Assuming that the capital gain that is distributed by the trust will place the beneficiary in the highest tax bracket for individuals the result of this proposal, in real terms, would be to double the CGT tax burden from an effective rate of 13,3% to an effective rate of 26,7% of the gain! This places a serious question mark on the viability of having a trust.