[Question] Trusts

[Roger15]

Hi there,

A Trust is set up by two other trusts(which will be the beneficiaries)...does this automatically make the trust a defined "partnership" like as in 50/50? As defined in the income tax act and Property Property control Act?

Thanks

[Dave A]

A Trust is set up by two other trusts(which will be the beneficiaries)...does this automatically make the trust a defined "partnership" like as in 50/50?

Certainly not automatically under most applications. It'll be governed by the trust deed, but typically the trust deed only defines the beneficiaries and the trustees, and leaves the issue of distributions and their allocations to the discretion of the trustees. If it were a partnership, there would be the implication of an interest (akin to shareholding) which would defeat much of the fundamental purpose of trusts in the first place.

How this relates to various pieces of legislation is an interesting question.

When it comes to income tax, taxable income would be taxed in the hands of the trust, or you'd use the flow through principle to distribute the income and have it taxed in the hands of the beneficiary (or beneficiaries). But an actual transfer of the funds would have to take place to the beneficiaries, and there's ordinarily no guarantee that the distribution will be equal across all beneficiaries.

I'm not familiar with the Property Control Act and any possible implications or interpretations that may be in place for that one. However, BEE legislation does deal specifically with how to deal with race and gender allocations when it comes to business ownership via trusts - essentially an even split across the beneficiaries. In this case, your 50/50 split model would apply.