by Tobias | 08.Mar.2017 | News
The consequence of section 7C is that the difference between the interest rate charged and the official interest rate of 8% on a loan made by a connected person to a trust will be treated as an ongoing and annual donation on the last day of the tax year and will be subject to donations tax at a rate of 20%. The Explanatory Memorandum of the Taxation Laws Amendment Bill issued by SARS on 15 December 2016 explains the thinking of SARS relating to loans created by the vesting of awards in a beneficiary without paying such awards to such beneficiary. It states that – “An amount that is vested irrevocably by a trustee in a trust beneficiary and that is used or administered for the benefit of that beneficiary without distributing or paying it to that beneficiary will not qualify as a loan or credit provided by that beneficiary to that trust if – The vested amount in terms of the trust deed governing that trust not be distributed to that beneficiary, e.g. before the beneficiary reaches a specific age; or That trustee has the sole discretion in terms of that trust deed regarding the timing of and the extent of any distribution to that beneficiary of such vested amount. An amount vested by a trust in a trust beneficiary that is not distributed to that beneficiary will, however, qualify as a loan or credit provided by that beneficiary to that trust if that non-distribution results from an election exercised by that beneficiary or a request by that beneficiary that the amount not be distributed or paid over,...
by Tobias | 06.Mar.2017 | News
Effective from 1 March 2017 section 7C will apply to all loans, including loans currently in existence, made to a trust by connected parties (including the founder, trust beneficiaries and any relatives of such beneficiaries as well as connected companies) where no interest or interest below the official rate of interest is charged (currently 8%). The consequences: The difference between the interest rate charged and the official interest rate of 8% in the hands of the lender will be treated as an ongoing and annual donation on the last day of the tax year and will be subject to donations tax at a rate of 20%. Transactions not affected: Here are some transactions that will not be affected by 7C: Vesting trusts like most testamentary trusts; Special trusts; A loan made to a trust to purchase a property which property is used as a primary residence by the person or his/her spouse throughout the year of assessment. Example: Mr X made an interest-free loan to a trust of R5 000 000. The trust bought a primary residence for R3 500 000. The remaining R1 500 000 was used to buy an endowment policy. The result of the above transactions is that 7C will only be applied in respect of the R1 500 000 not used for purposes of acquiring a primary residence. Section 7C calculation works as follows: Donation: (R5 000 000 – R3 500 000) x (8% – 0%) = R120 000 Donation tax payable R120 000 Less annual exemption R100 000 R20 000 taxable at 20% Donations tax payable of R4 000 Donations to the value of R1 250 000: Interest-free loans up to R1 250 000 will not give rise to donations...
by Tobias | 28.Feb.2017 | News
Individual Tax: A super tax bracket of 45% has been introduced for individuals with a taxable income of more than R1 500 000. Middle class individuals earning between R500 000 and R1.5 million should be most upset as Treasury did little to adjust the tax tables for inflation. The effect is that they will pay R12 billion more than if the brackets had been adjusted to fully accommodate inflation. Capital Gains Tax: Capital gains inclusion rates remain at 40% for individuals and 80% for companies and trusts. With the introduction of the super tax bracket of 45%, the maximum effective capital gains tax rates are now as follows: Individuals 18% (previously 16.4%) Companies 22.4% (remained the same) Trusts 36% (previously 32.4%) The annual exclusion remains R40 000 and at death R300 000. Dividend withholding tax: Dividend Withholding Tax increases from 15% to 20%, thus a substantial increase of 33.34%. This increase is effective from 22 February 2017. Company taxes: Small changes were made to the tax brackets of small businesses while the rates of other companies remained the same at 28%. Trusts: Trusts, excluding special trusts, will be taxed at a flat rate of 45%. Transfer Duty: Treasury provided relief in the affordable housing market through an increase in the threshold above which transfer duty is paid from R750 000 to R900 000. This means that no transfer duty will be payable on a property to the value of R900 000 or less. Estate Duty: Although an increase in the estate duty rate of 20% to at least...
by Tobias | 11.Jun.2015 | News
Consider all possibilities when bequeathing a loan account In one of the popular estate planning structures, estate owners were advised over the years to sell growth assets to an inter vivos trust on outstanding loan account. Prior to the ABC case mentioned below, the outstanding amount of the loan on date of death of the seller was then bequeathed in his/her Will to the trust, thereby completing the transfer of the full value of the asset(s) to the trust. View full...
by Tobias | 11.Jun.2015 | News
Trusts in the life insurance industry While trusts have many valid benefits (such as estate pegging, protection against creditors and protecting the interests of minor children or the disabled) there can be severe consequences if particular attention is not paid to the structuring of life assurance benefits where trusts are involved. View full...
