Original Research

An investigation into the future of discretionary trusts in South Africa: An income tax perspective: Part 2

Sophia M. Brink
South African Journal of Economic and Management Sciences | Vol 20, No 1 | a1789 | DOI: https://doi.org/10.4102/sajems.v20i1.1789 | © 2017 Sophia M. Brink | This work is licensed under CC Attribution 4.0
Submitted: 16 February 2017 | Published: 31 July 2017


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Abstract

Background: Trusts have long been used as an estate planning mechanism, including the avoidance of estate duty and donations tax. In the 2016 National Budget the Minister of Finance indicated that Government was proposing several legislative measures during 2016/2017 to prevent individuals from using a trust to avoid estate duty (and donations tax to a certain extent). Unexpectedly, the 2016 draft Taxation Laws Amendment Bill and the final Amendment Bill did not give effect to any of these proposals, but introduced other less drastic measures to control the abuse of trusts for tax purposes, albeit with the same stated purpose.

Aim: The main aim of the study was to clarify the reform proposals (albeit unclear and consequently based on certain assumptions) and to compare the reform proposals with the final amendments. This comparison will shed some light on the fairness and appropriateness of the final amendments and, more importantly, on the possibility that the reform proposals published by National Treasury in February 2016 not included in the final amendments will be enacted in the future. This investigation will assist tax practitioners and taxpayers in effective tax and estate planning, given that the reform proposals and final amendments have a possible impact on the future of discretionary trusts in South Africa.

Setting: This article examines existing literature in a South African income tax environment.

Methods: In order to meet this objective a qualitative approach based on a literature study of pure theoretical aspects was used.

Results and conclusion: It was found that should the reform proposals become law, many trusts would become ineffective from a tax-planning perspective and these changes might erode other benefits trusts offer, jeopardising the future of discretionary trusts in South Africa.


Keywords

Income Tax Act No. 58 of 1962; discretionary trusts; trust reform; estate duty; tax avoidance

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