Payments to beneficiary from family trust

[Roy6898118]

I am a beneficiary (and original donor) of a family trust registered in South Africa.

1. Suppose the trustees decided to liquidate the trust assets and pay the balance to me (after meeting any income tax due in the trust and any capital gains tax arising on the sale of the assets).

How is the net payment to me from the trust treated for tax purposes? Do I receive the net assets without any further tax liability (i.e. with no donations tax, or income tax payable?)

2. Suppose that the trust assets are not liquidated and the trustees decide to make a payment from the trust assets to another beneficiary of the trust (a major child), is the tax treatment of the payment in the hands of that beneficiary the same?

[Dave A]

By my understanding any income needs to be taxed only once, and you can use the flow-through principle to pick where it is taxed - either in the hands of the trust or in the hands of the recipient beneficiary.

[Roy6898118]

Thanks Dave.

I agree that income tax or CGT is levied once. However, donations tax is a form of double tax as it is levied on amounts previously taxed.

Could these payments to beneficiaries be treated as donations and therefore subject to donations tax (in addition to any income tax and CGT already paid)?

Thanks

[Dave A]

The trust represents the beneficiaries.

Donation tax could become an issue if a non-beneficiary per the trust deed was the recipient of a benefit, but surely that's an unlikely (if not ordinarily unlawful) event. After all, would this be in the interests of the beneficiaries per the trust deed?

[Roy6898118]

The trust represents the beneficiaries.

Donation tax could become an issue if a non-beneficiary per the trust deed was the recipient of a benefit, but surely that's an unlikely (if not ordinarily unlawful) event. After all, would this be in the interests of the beneficiaries per the trust deed?

Hi Dave - thanks.

No, we are not contemplating any payment to a non-beneficiary.

I was just concerned that a payment even to a Beneficiary of the trust would be treated as a donation. Are you saying that amounts paid to a beneficiary would not be treated as a donation and would only be treated as a donation if benfits were paid to a non-beneficiary (which is not contemplated)?

Thanks

[Dave A]

It's an allocation and disbursement of a benefit to a specific beneficiary, not a donation.