Dear Fellow Trustee

We trust you are well and prospering.

This month we take a look into the future and attempt to unravel the impact of the Budget Speech that was delivered last week in so far as Trusts are concerned. As far as we are concerned the more things change the more they stay the same…This will become evident as we take you through the history and the utility of Trusts. We have been inundated with queries and requests about how Trusts are to be taxed in the future. At this juncture nobody can with any certainty properly or fully advise what to expect except that change is afoot.

In our estimation the following line from the Budget Speech is what we need to focus on:
“The taxation of trusts will come under review to control abuse”

We have on many occasions informed and advised you that in the event that you comply with the Income Tax Act, you and the Trust structures will be okay. However many taxpayers out there do abuse the Trust form and hence the decision to curtail the manner in which Trusts are to be taxed going forward.

It is vital that you know that whilst comments, proposals and suggestions are made in the Budget Speech, this ONLY means that there MAY be changes not that they will come into play.

In a number of previous Budgets, mention was made that measures would be taken to eliminate the use of usufructs, they are still around and being utilized regularly, further in two consecutive Budgets the Minister stated that Estate Duty would be abolished as it was to expensive to collect, surprisingly we still have Estate Duty.

The reality is that the stated changes DO NOT always materialise.

We now turn to what all the media hype and the naysayers have to say:

The demise of Trusts…Trusts are now highly tax inefficient…etc, etc

The majority of the media statements have arisen around the Budget Review document, this document briefly touched on the proposed or intended changes. It has been stated that the flow through principle is to be addressed by ensuring that the revenue or gains will be taxed in the hands of the Trust.

If they applied their minds they would have read further that if the Trust distributes revenue to a beneficiary then this will be a tax deduction, effectively the conduit principle is alive and well, so nothing has changed on the income / revenue front BUT the position pertaining to interest and capital gains is set to change and this is where some great tax advantages may be lost.  How these are to be implemented remains to be seen as capital gains are attributed and not distributed from a tax perspective. We wait with bated breath…

The above notwithstanding, Trusts are still the ONLY entity that can provide comprehensive asset protection, estate duty savings, capital gains tax savings on death, avoidance of hefty executors fees and other costs related to winding up your estate, ensuring the continuity of the legacy you are building and of course protecting your minors and persons who need to be protected from themselves!

A few examples may elucidate the points made above:

1.    You want to save capital gains tax when selling your house or assets BUT end up losing the asset to a creditor or on divorce because it is not in a Trust!

2.    You wish to save capital gains tax on some assets that you may sell during the course of your life BUT on your demise your estate pays CGT on ALL YOUR ASSETS.

3.    On death your estate pays Executors Fees of roughly 4% on the GROSS value of all your assets! Plus a 6% fee on any income that flows into your deceased estate.

4.    There will be various costs levied to transfer properties and assets to beneficiaries.

5.    Estate duty of 20% of the net value of your estate is payable on death.

Please also note:

Business structures (PTY and CC) are not affected in any way so the status quo remains intact in this regard. These entities will continue to be Trust owned.

YOU must also consider the major tax advantages you and your beneficiaries will enjoy before the asset is sold, e.g. The Trust owns an asset that generates R 100 000.00 per annum for 10 years and this is distributed to your children, this results in tax free income of a R 1million, on the event of the sale of the property if the Trust pays 26.67% CGT instead of 13.3% you will be better overall, this is also not taking any losses into account.

As with any change or obstacle there is opportunity for those who fully understand Trusts and the Taxation of Trusts, we will address these issues in our NEW seminar focusing on Business Owners. The session will cover corporate, commercial and trust structuring, risk mitigation, tax planning, estate planning, financial planning and business financing.


Have an awesome fun filled and fulfilled month till our next infomail, as always, in the event that you require assistance with any of the issues raised above or need any help with any aspect of relating to the Trust, please contact us at or 021 671-6128