Author: Sumesh Somaroo, audit and assurance partner, BDO Durban Durban, September 2015. There are several common mistakes made in the operation of trusts that have been set up for estate planning purposes, to protect assets from creditors and for potential tax savings. So says Sumesh Somaroo, a partner at the Durban office of audit, advisory and tax firm, BDO South Africa, who warned that the verification of trust tax returns by SARS was on the increase and that it was important for people to get their trusts in order.
Category: Trusts
Taxation of estates to also be revisited?
Authors: Hanneke Farrand and Hannelie la Grange Introduction We previously commented on the recommendations made by the Davis Tax Committee (“DTC”) relating to the taxation of trusts in our article entitled “Taxation of trusts to be revisited?” dated 28 July 2015. We set out below our comments on the recommendations made in the DTC First Interim Report on Estate Duty (“DTC Report”) dealing with estate duty, capital gains tax (“CGT”) and donations tax. The Minister of Finance instructed the DTC to enquire into “the progressivity of the tax system and the role and continued relevance of estate duty to support a more equitable and progressive tax system”, specifically taking into account the interaction between CGT and estate duty. To this end, the DTC Report was released for public comment on 13 July 2015.
Estate planning: Tax trouble for trusts
Authors: Ruan Jooste and Maarten Mittner (Financial Mail) The Davis Committee’s recommendations on the taxation of trusts and estate duties are punitive in their present form, say industry players, and could lead to new forms of legal avoidance. If the recommendations are implemented, all SA resident trusts and their beneficiaries or donors will be taxed as separate taxpayers. Trusts will be taxed at a flat income tax rate of 41% and an effective capital gains tax (CGT) rate of 27,31%.
Taxation of trusts revisited
Author: Hanneke Farrand (ENSafrica) The Davis Tax Committee’s First Interim Report on Estate Duty (“DTC Report”) was released for public comment on 13 July 2015. In essence, the DTC Report proposes that “a highly progressive tax that patches loopholes, helps provide equality of opportunity and reduces the concentration of wealth, must be implemented”. The DTC Report was released in draft and is, therefore, open to comment. Following from this, it is clear that the recommendations in the DTC Report will not necessarily find their way into draft tax legislation. South Africa has well established rules and case law dealing with the taxation of trusts. The South African Revenue Service (“SARS”) recently introduced new tax returns for trusts that require far more detailed disclosures by taxpayers in accordance with these principles.
Taxation of trusts revisited
Author: Hanneke Farrand – Tax Director at ENS africa The Davis Tax Committee’s First Interim Report on Estate Duty (“DTC Report”) was released for public comment on 13 July 2015. In essence, the DTC Report proposes that “a highly progressive tax that patches loopholes, helps provide equality of opportunity and reduces the concentration of wealth, must be implemented”. The DTC Report was released in draft and is, therefore, open to comment. Following from this, it is clear that the recommendations in the DTC Report will not necessarily find their way into draft tax legislation. South Africa has well established rules and case law dealing with the taxation of trusts. The South African Revenue Service (“SARS”) recently introduced new tax returns for trusts that require far more detailed disclosures by taxpayers in accordance with these principles.
Don’t let anger shape your last Will and Testament
It is imperative to amend or update your Will to accommodate changes in financial or family circumstances. However, all too often people make impulsive changes to their Wills, either out of anger, or on a momentary whim. According to Peter Prentice, a specialist consultant in Estate Planning and Administration for audit, advisory and tax firm, BDO South Africa, this is something he sees often and unfortunately it can lead to a legacy of family division which no amount of money or compensation will heal.
The Davis Tax Committee proposes radical overhaul of trust taxation
The Davis Tax Committee (‘the DTC’) released its First Report on Estate Duty. The DTC decided in favour of a modified estate duty and against the introduction of a Capital Transfer Tax. The DTC recommends that the estate duty exemption that currently applies to inheritances by surviving spouses be removed or that it be limited to a specific amount. This will result in earlier collection of estate duty. As the contribution of estate duty to the total tax take is actually marginal, this change will arguably have a minute effect on tax collections, but will result in increases administration and estate planning costs. The DTC also addressed trust taxation. To curb tax avoidance it proposes that South African trusts be taxed on income distributed to beneficiaries. Trust income will then be subject to tax at the
Binding Private Ruling – Awards from foreign trusts
The South African Revenue Service (SARS) published Binding Private Ruling No 197 (Ruling) on 1 July 2015. The Ruling deals with the receipt of funds from a foreign trust, and the subsequent donation and investment thereof. The applicant was an individual resident in South Africa. The applicant was also a beneficiary of a foreign trust. The foreign trust only held funds sourced from outside South Africa. The trustees of the foreign trust resolved to award a specified amount of the foreign trust funds to the applicant, after which the applicant would be removed as a beneficiary.
In trusts we trust
As parties to litigation, creditors often find themselves in a predicament where the individual they have a claim against has assets of insignificant value. The same individual may, however, be a trustee of a discretionary trust owning substantial assets. Faced with this difficulty, creditors are left with little choice but to ask a court to ‘go behind the trust’ in an attempt to find assets to execute judgment against. Allegations of a trust being a debtor’s ‘alter ego’ or ‘a sham’ often find their way into pleadings and the terms are frequently used interchangeably. To date, our courts have mostly shied away from declaring assets registered in a trust to be regarded as assets falling within the personal estate of one of the trust’s trustees. The recent judgment of Van Zyl and Another Nno V Kaye No and Others 2014 (4) Sa 452 (WCC) confirms this reluctance.
Reportable arrangements specifically extended to foreign trust structures
On 16 March 2015, the Commissioner for the South African Revenue Service (SARS) published Government Notice No. 212 in terms of s35(2) and s36(4) of the Tax Administration Act No, 28 of 2011 (TAA) specifically listing certain arrangements as so-called reportable arrangements (Notice). These listed arrangements are in addition to the arrangements that are already listed in s35(1) of the TAA. The effect of an arrangement being regarded as a reportable arrangement for purposes of s35 of the TAA read with the Notice is that,