Rate of Tax?
The current tax rate is 45%.
Transfer Duty
Payable on all acquisition of property that are not already subject to VAT
Capital Gains Tax?
- Payable on the disposal of assets by the trust in the net capital gain. Maximum effective rate: 32.8% (max effective rate for an individual 16.4%, company 22.4%)
- This gain can however be distributed to the beneficiary by the trustees who will then be taxed at the lower individual rate. However, this distribution must take place in the same year that the gain accrues
Donations to Trust
Donations tax levied at flat rate of 20% on value of property donated with the first R100K of property donated each year by a natural person being exempt from donations tax (i.e. can donate R100K per spouse to the trust each year). I.e. this “donation” to the trust is then used to pay back the Founders loan account.
NB: If property sold for a consideration that is not an adequate/market related consideration then there is a deemed donation.
Estate Planning
- Estate duty at a flat rate of 20% is levied on all property of natural persons on their death.
However, the following basic deductions are first allowed before the application of the 20% levy: R3.5mil as well as deductions for liabilities and property accruing to the surviving spouse. - Capital Gains Tax will also be applicable on death of a natural person.
However assets, once owned by the trust, will NOT be subject to estate duty or Capital Gains tax on the death of the Founder. - Property to Trust ex Founder via loan account: Will be the Founding Creditor therefore no donations tax.
- Interest should be charged on the loan account so created at market related rates (else trust income will be deemed to accrue to the founding creditor to the extent that interest should have been charged). *See also below Judge Davis proposals
- NB: Transfer of title subject to transfer duty.
- Growth on assets where ownership has been transferred to the trust will take place in the trust and not in the hands of the Founder. I.e. The increase in value will not be included in the Founder’s estate, but only the balance on the loan account.
Be aware of
This is what we do. Your focus should be on generation of income as opposed to being buried in paperwork. For the majority of our clients, we attend the entire accounting function on a bi-monthly or monthly basis including the VAT and management reporting function. This means the client is not lumped with a huge bill at the end of the year and has regular access to quality information during the course of the year. However, this is not cast in stone and we cater to each client’s individual and specific needs.
*Trusts – Judge Davis has recommended to the Government that the ‘first salvo’ against Trusts dealing with interest on loan accounts should be broadened and that if no interest is charged on such loans, all the assets of my Trust should be deemed to belong to me at the time of my death and be exposed to Estate Duty. In other words that the Government be entitled to effectively ignore the existence of the Trust completely. In addition to this Judge Davis has recommended that the ‘flow-through principle’ should be blocked and only allowed in very limited circumstances. In this regard and as the law stands, Trustees can decide to pass on to Beneficiaries of the Trust, pre-tax income where the tax will then be payable by the Beneficiaries. This is done quite regularly to benefit from the difference between individual and Trust tax rates. (Sept 2016)
