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Thread: Trust tax question

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    Trust tax question

    Hi
    I am updating my tax knowledge and i have in the past completely avoided trust accounting / tax but its time .....

    My question is :

    If a parent donates assets to a trust relating to a minor i know the parent gets taxed on the income. If the Grandparent donates or infact anyone else on behalf of the minor then the minor gets taxed in their own right. But can a minor submit a tax return or would it be added to the parents tax return?

    Please help

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    In the first instance, beneficiaries only get taxed on distributions, if at all.
    The trust, on the other hand, is a taxpayer and is taxed on it's profits, if any.
    Donations are exempt in the hands of a trust and do not form part of it's taxable profits.
    Donors to trusts are taxed (donations tax) only when the donations tax limits are exceeded.

    In your question:
    The parent (or anybody else for that matter) is liable to pay donations tax if their donations exceeded the annual limit. There is no impact on the beneficiary.

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    Gold Member Singhms's Avatar
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    Interesting, how much is donations tax and what is the threshold?
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    It's easiest to quote SARS here:

    Donations tax is tax payable on the value of property disposed of by a resident by means of a donation.
    What is the rate?

    Donations tax is levied at a flat rate of 20% on the value of the property donated.

    Donors as individuals

    In terms of section 56(2) of the Income Tax Act - Donations tax shall not be payable in respect of so much of the sum of the values of all property disposed of under donations by a donor who is a natural person as does not during any year of assessment exceed R100 000. This came into operation from 2007/03/01 and is applicable in respect of any year of assessment commencing on or after that date.

    Donors other than individuals

    For juristic persons such as private companies, the exemption is limited to R10 000 in respect of casual gifts. Public companies are exempt from donations tax.

    Donations to public-benefit organisations

    These donations are exempt from tax.

    When is a disposal considered a donation?

    If any property has been disposed of for a consideration that, in the opinion of the Commissioner, is not an adequate consideration, that property is treated as having been disposed of by donation. The donor is liable for the payment of the donations tax. If the donor fails to pay the tax within the prescribed period, the donor and the donee are jointly and severally liable for the tax.

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    I am reading that Trusts used to be a very tax efficient way of receiving income and allocating to minors or spouses subject to lower tax rates but with the introduction of section 7 alot of these loopholes have been closed up. I was then wondering, is a Trust still worthwhile?

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    The Trust is a vehicle to protect assets.
    This is like insurance and will draw a cost. The decision you must make - is it worth while for me to maintain a Trust.
    If you are in business, and you have signed sureties, then you have no choice but to ensure that you have a Trust as a protection mechanism when the business goes bad. Under the current financial melt down, how many businesses have not gone under, taking the family with it.
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    Gold Member Singhms's Avatar
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    How does a trust provide protection of assets?
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    The trust owns the assets, and not you personally. Then the Trust allows you to use the assets. No one can take ownership of the asset if you owe them money, because the asset does not belong to you, but to the Trust.

    There is some legal issues you must deal with in the Trust, to ensure that you are not seen as using the Trusts assets as if they are your own. You need an independent trustee, and all decisions must be minuted and approved by the Trustees. Make no mistake, you as a trustee are held personally responsible for the operation of the trust, as the beneficiaries have entrusted you to look after them.

    I suggest you contact a Trust attorney to find out the pros and cons of having a trust.

    Ensure the attorney you visit is effluent in the Trust laws, as he will have to defend the trust at some time or other if it comes under attack.
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    Gold Member Singhms's Avatar
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    So, lets take this example.

    I have some assets that I want to protect in a trust.

    Will I be a beneficiary to the trust? and will the e.g. attorney be the trustee?

    If this is the case how am I still the owner of the assets? as the trustee is the main controller of the assets correct?
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    If you have property that you wish to transfer to a trust (or a company for that matter) would you pay transfer duty on it?

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