Thistle Trust v Commissioner for the South African Revenue Service CCT337/22

Case CCT 337/22 [2024] ZACC 19 Ordered Date: 08 February 2024 Judgement Date: 02 October 2024 Post JudgmentMedia Summary The following explanatory note is provided to assist the media in reporting this case and is not binding on the Constitutional Court or any member of the Court. On 2 October 2024, the Constitutional Court handed down judgment in an application for leave to appeal and a conditional application for leave to cross-appeal against a judgment of the Supreme Court of Appeal. The application concerned the applicability of the conduit principle to capital gains when distributed by multiple trusts in the same tax year in terms of the common law, section 25B and paragraph 80 of the Eighth Schedule of the Income Tax Act 28 of 1962. The conditional cross-appeal concerned whether the circumstances giving rise to the tax treatment by the Thistle Trust warranted the imposition of an understatement penalty.

A sensible outcome: SARS ruling regarding special trusts

At a glance In Binding Private Ruling 384 (BPR 384) a question arose regarding the donations and capital gains tax consequences resulting from the beneficiary (applicant) of a special trust ceding his loan account against the trust, to that trust. SARS ruled that the cession by the applicant of his loan account to the special trust does not constitute a donation in terms of section 54 of the Income Tax Act 58 of 1962. SARS also ruled that the proceeds in respect of the cession of the loan account will be equal to the face value of the loan account. Consequently, no capital gain or loss will be realised by the applicant from the cession of the loan account.

Does a trust require an independent trustee

Often, when dealing with our clients trust matters, we are asked whether the clients brother/sister/closest friend would be a suitable independent trustee for their trust. Although not required in terms of the Trust Property Control Act, it has become practice because of various case law and rulings, to appoint a truly independent trustee. This challenges the way most family trusts have historically functioned.

Potential amendments affecting foreign trusts holding shares in foreign companies

Author: Joon Chong, Tax Partner at Webber Wentzel. National Treasury has held a few workshops this year to engage with stakeholders on proposed amendments before the draft amendment bills are circulated for comment. At one of these workshops attended by the Webber Wentzel Tax Team, National Treasury indicated that there could be amendments in the draft bills which would affect resident beneficiaries and donors to foreign trusts, where these foreign trusts hold shares in foreign companies.

Trusts: More bad news, with one silver lining

Author: Louis Botha (Associate at Cliffe Dekker Hofmeyr). On 1 March 2017, s7C of the Income Tax Act, No 58 of 1962 (Act) came into effect. On 1 March 2017, s7C of the Income Tax Act, No 58 of 1962 (Act) came into effect. One of the reasons for introducing this provision was to prevent taxpayers from avoiding estate duty, by selling assets to a trust on loan account, which loan account they would then extinguish by making use of their annual donations tax exemption of R100,000. Section 7C addresses this avoidance, by providing, amongst other things, that the trust must pay interest on such loan, advance or credit, but only where the trust and the natural person are connected persons, such as where the natural person is a beneficiary of the trust. Where the trust does not pay interest on the loan to the natural person or pays interest Read More …

Trusts – the new position

On 19 January 2017 the Taxation Laws Amendment Act, No 16 of 2016 (2016 Amendment Act) came into effect. The 2016 Amendment Act introduced s7C into the Income Tax Act, No 58 of 1962 (Act) which provision will come into effect on 1 March 2017. Section 7C will bring about some important changes to the tax dispensation applicable to trusts.

Will trusts still be the way to go? The new Section 7C proposed by the Draft Taxation Laws Amendment Bill

For a number of years, National Treasury indicated that it intended tightening up the tax provisions applicable to trusts. On 8 July 2016, the Draft Taxation Laws Amendment Bill (Draft TLAB) and the Explanatory Memorandum on the Draft TLAB (Explanatory Memorandum) were released by National Treasury. The Draft TLAB proposes to introduce a new s7C into the Income Tax Act, No 58 of 1962 (Act), which will have far-reaching tax consequences for trusts and persons utilising trusts as an investment vehicle, if it is enacted in its present form.

Deferring tax by using unit trusts

Investors in shares are able to defer capital gains tax (CGT) using unit trusts. The deferral works as follows: Section 42 of the Income Tax Act, No 58 of 1962 (IT Act) allows a taxpayer to transfer listed shares to a company free of immediate tax consequences if certain requirements are met. One requirement is that the shares must be transferred in exchange for “equity shares” in the transferee company. If the requirements are met the taxpayer suffers no CGT or securities transfer tax (STT) in relation to the shares transferred. The taxpayer must account for CGT in future when it disposes of the equity shares it has acquired in exchange for the assets.

Taxation Laws Amendment Bill released for comment

Authors: Bernard du Plessis and Peter Dachs (ENSafrica). The Taxation Laws Amendment Bill 2016 has been released for public comment. It introduces various interesting amendments to South Africa’s tax law, which include the following: Use of trusts In circumstances where an interest-free loan has been advanced to a trust by a connected person (which includes a beneficiary or a relative of a beneficiary), it is proposed that a market-related rate of interest (currently 8%) is deemed to be paid on that loan. This deemed interest will not be tax deductible in the hands of the trust but will be taxable in the hands of the lender and will not qualify for an interest exemption.