The Future of Trusts

The Future of Trusts

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Minister Pravin Gordhan in his 2013-14 budget speech announced that SARS is considering reforms to the taxation of trusts. The Budget Review document included a part on “Reforming the Taxation of Trusts” which states:

“To curtail tax avoidance associated with trusts, government is proposing several legislative measures during 2013/14. Certain aspects of local and offshore trusts have long been a problem for global tax enforcement due to their flexibility and flow-through nature. Also of concern is the use of trusts to avoid estate duty, which will be reviewed.”

The following has been proposed to address these problems:

  • Discretionary trusts will no longer act as conduit vehicles (the flow-through nature). A full calculation of taxable income must be determined at the trust level with deductions being allowed for any distributions to beneficiaries (limited to taxable income)
  • Any amount received from an offshore trust will be treated as ordinary income.

These proposed amendments will not apply to those trusts that have been set up to tend to the needs of minor children and people with disabilities.

This does not mean you need to immediately go out and dissolve your trust, which might trigger a lot of unnecessary taxes. Although these announcements were part of the Budget review, the Treasury department will engage in a public consultation process first before any of the proposals can become law.

But forewarned is fore-armed, and now might be a good time to sit down with a qualified financial planner to re-assess the part your trust plays in your overall financial planning.

Andrew Padoa
Andrew Padoa works in the Private Client’s division at Consolidated Financial Planning. His area of expertise is investments, estate planning, retirement planning and portfolio benchmarking. He has had numerous articles published in the media on a number of topics related to personal financial management. Andrew is passionate about educating people and has given several financial literacy talks to both schools and corporates. His objective is to use his abilities and knowledge to help others achieve their financial goals. Visit www.consolidated.co.za for more information