In terms of current law (Up to 29 February 2024), should trust income be vested in a beneficiary of such trust during the year of assessment, the income flows through the trust and is taxed in the hands of the beneficiary. This is the case regardless of whether the beneficiary is a tax resident of South Africa or not.
In contrast, capital gains realised by a trust which are vested in a beneficiary during the year of assessment give rise to different tax consequences if distributed to a non-resident beneficiary as opposed to an SA tax resident beneficiary:
- capital gains realised by a South African trust and vested in a South African tax resident beneficiary will be subject to income tax in the hands of such beneficiary;
- capital gains realised by a South African trust and vested in a non-resident will be subject to income tax in the hands of the trust (i.e., the tax is “trapped” in the trust).
In accordance with the new Amendment, the taxation of trust income vested in a non-resident beneficiary is to be aligned with the manner in which capital gains vested in non-resident beneficiaries are taxed.
The impact of this proposal may be illustrated as follows:
A Trust will still be able to vest income to a non-resident, however the income will first be taxed in the Trust.
This Amendment will come into effect from 1 March 2024.
Additional information: Definition of non-resident: https://www.sars.gov.za/individuals/tax-during-all-life-stages-and-events/tax-and-non-residents/
Please consider the implications of the new Amendment and indicate if you require any additional information or assistance.