Distributions from Offshore Trusts. Hanneke Farrand

Transcription

1 Distributins frm Offshre Trusts Hanneke Farrand

2 Freign trusts Distributin rules Current year s incme f trust vested in SA resident beneficiary is taxed in beneficiary s hands If trust received any incme and held such incme ver year end, it becmes capital f the trust Capital f nn-resident trust distributed t SA resident beneficiary may be taxed in beneficiary s hands it s25b(2a) if: capital arse frm receipts and accruals which wuld have cnstituted incme if trust had been a resident in prir tax year in which resident had cntingent right t capital amunt nt subject t tax in SA

3 Freign trusts (cntinued) Distributin rules capital S25B(2A) nly applies t incme as defined ie. grss incme less exempt incme Example: Freign trust hlds 100% shares in freign cmpany (hlds incme prducing assets) Trust receives distributins frm Cmpany and hlds ver fiscal year end If distributins = freign dividends and Trust vests capital arising frm such freign dividends in SA resident beneficiary, s25b(2a) shuld nt apply due t participatin exemptin ie. freign dividends wuld be exempt frm tax if Trust was a resident

4 Freign Trusts (cntinued) Distributin rules capital gains Capital distributed t SA resident beneficiary may be taxed in beneficiary s hands it para 80(3) f Eighth Schedule if: Capital arse frm a capital gain r amunt that wuld have cnstituted a capital gain if trust had been a resident Determined in any previus tax year during which resident had cntingent right t capital Nt applicable if capital gain was previusly subject t tax in SA Nature f capital must be established

5 Freign trusts (cntinued) Distributin rules prpsed changes Prpsed change t s25b(2a) disregard participatin exemptin if: Trust, r any ne r mre cnnected persns in relatin t trust, hld/exercises at least 50% ttal participatin rights / vting rights Resident r cnnected persn in relatin t resident is cnnected persn in relatin t trust and Freign dividend is nt derived frm amunt included in incme f resident r attributed as capital gain t resident Effective date tax years cmmencing n/after 1 March 2019

6 Freign trusts (cntinued) Distributin rules prpsed changes (cnt.) Cnnected persn in relatin t trust: Beneficiary Cnnected persn in relatin t beneficiary Cnnected persn in relatin t natural persn: Relative Trust f which persn/relative is beneficiary Cnnected persn need nt be a SA resident Effect f prpsed change: capital distributins arising frm freign dividends in these circumstances taxable at maximum marginal rate f 20% it s10b(3)

7 Freign Trusts (cntinued) Distributin f capital gains prpsed changes Para 80(2) vesting f gains If a SA trust dispses f an asset and vests the resultant capital gain in a resident beneficiary in the same tax year, the beneficiary wuld currently be subject t CGT ir the gain. Nt applicable t freign trusts except if asset subject t CGT in SA in hands f nnresident The DTLAB prpses t extend this prvisin t include gains vested by a freign trust in a SA resident beneficiary in same tax year which wuld have been a capital gain if trust had been a resident

8 Freign trusts (cntinued) Distributin f capital gains prpsed changes (cnt.) Para 80(3) prir year s capital gains If a freign trust vests an amunt f capital arising frm a prir year s capital gain (r what wuld have been a capital gain if the freign trust had been a resident) in a SA resident beneficiary, the beneficiary wuld be subject t CGT n this capital distributin Para 80(1), (2) and (3) The DTLAB prpses that the participatin exemptin in paragraph 64B(1) and (4) f the Eighth Schedule must be disregarded in determining whether an amunt wuld have been a capital gain if the trust had been a resident. Effective date 1 March 2019 dispsals n r after that date

9 Freign trusts (cntinued) Attributin rules nly discretinary trusts amunts retained in freign trust may be taxed in hands f dnr/settlr Incme s7(8) Capital gains para 72 dnatin, settlement r ther (gratuitus) dispsitin interest-free lan = gratuitus dispsitin t extent f interest nt charged

10 Freign trusts (cntinued) Attributin rules (cnt.) Sectin 7(8): where by reasn f r in cnsequence f any dnatin, settlement r ther dispsitin made by any resident any amunt is received by r accrued t any persn wh is nt a resident which wuld have cnstituted incme had that persn been a resident amunt attributable t dnatin, settlement r ther dispsitin, is included in incme f resident

11 Freign trusts (cntinued) Attributin rules prpsed changes Sectin 7(8): In determining whether amunt wuld have cnstituted incme had the trust been a resident, participatin exemptin in s10b(2)(a) must be disregarded ir freign dividends: Paid/payable by cmpany if: At least 50% ttal participatin rights/vting rights held/exercisable by trust r any ne r mre cnnected persns Resident wh made dnatin, settlement r ther dispsitin r any cnnected persn is cnnected persn in relatin t trust

12 Freign trusts (cntinued) Attributin rules prpsed changes (cnt.) Sectin 7(8): T extent freign dividend is nt derived frm amunt included in incme f resident (wh made dnatin, settlement r ther dispsitin) r attributed t resident as capital gain Effective date: amunts received r accrued n/after 1 March 2019

13 Freign trusts (cntinued) Attributin rules prpsed changes (cnt.) Para 72: where a resident has made a dnatin, settlement r ther dispsitin t any persn wh is nt a resident a capital gain (including any amunt wuld have cnstituted a capital gain had that persn been a resident) attributable t that dnatin, settlement r ther dispsitin) has arisen during a tax year and has vested in any persn wh is nt a resident (ther than a CFC) then capital gain is taxable in the hands f the resident

14 Freign trusts (cntinued) Attributin rules prpsed changes (cnt.) Para 72: In determining whether amunt wuld have cnstituted a capital gain had the trust been a resident, participatin exemptin in para 64B(1) and (4) must be disregarded Effective date: amunts received r accrued n/after 1 March 2019

15 Freign trusts (cntinued) Lans t trusts/cmpanies Sectin 7C - with effect frm 1 March 2017 Lan, advance r credit Natural persn r, at instance f natural persn, a cmpany in relatin t which that persn is a cnnected persn Directly /indirectly prvides t: Trust if persn/cmpany/cnnected persn is a cnnected persn in relatin t trust Cmpany if at least 20% f equity shares/vting rights are held/exercisable by trust r beneficiary f trust

16 Freign trusts (cntinued) Lans t trusts/cmpanies (cnt.) Sectin 7C if interest < fficial rate f interest, difference between actual interest incurred by trust and fficial rate f interest is treated as a dnatin and subject t dnatins tax n annual basis fficial rate f interest re freign currency lans = equivalent f SA rep rate in freign currency plus 100 basis pints excludes affected transactins subject t transfer pricing rules

17 Freign trusts (cntinued) Lans t trusts/cmpanies (cnt.) Sectin 7C prpsed changes Lan, advance r credit which a natural persn r, at instance f natural persn, a cmpany in relatin t which that persn is a cnnected persn directly /indirectly prvides t: a cmpany if at least 20% f equity shares/vting rights are held/exercisable by a trust, whether alne r jintly with any persn that is a cnnected persn in relatin t that trust with effect frm 19 July 2017 Draft Respnse Dcument - cnnected persn t be limited t relative within 2 nd degree f cnsanguinity

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