Trusts have been under attack in South Africa over the past few years. Taxand South Africa investigates how this influences estate duty and donations tax.
The scope for using them is at risk of becoming significantly reduced if the recommendations of the Davis Tax Committee First Interim Report on Estate Duty (DTC First Interim Report) and the proposals of the 2016 National Budget Speech (2016 Budget) are implemented.
It was stated in the 2016 Budget that reducing inequality is an important role of the tax system. Taxpayers who use trusts to avoid paying estate duty and donations tax have thus been targeted in an attempt to promote equality within South Africa. The rationale behind this is that the use of trusts to avoid paying estate duty and donations tax is mostly undertaken by high-net-worth individuals.
The DTC First Interim Report was published in January 2015. The report stipulated that the recommendations regarding trusts should only be announced in the 2016 Budget and that they should only be implemented from March 2016.
Taxpayers must be wary of the impending amendments and be mindful of whether their trust structure falls foul of them.