‘Taxation of a trust: the impact of statutory anti-tax avoidance measures on the effectiveness of the discretionary family trust as an estate planning vehicle in South Africa’

Abstract

The utilisation of trusts has become a popular trend among taxpayers, especially high net worth individuals1 (hereafter HNWI) who wish to reduce potential estate duties. The SARS Strategic Plan stated that there is a ‘compliance risk posed by HNWI and the use of trusts to conceal their income’.2 The SARS Strategic Plan announced that trust reform would be prioritised. Minister of Finance, Pravin Gordhan (hereafter Gordhan) referred in his 2012/2013 budget speech3 to various measures proposed to protect the tax base and limit the scope for tax leakage and avoidance. Gordhan reiterated the state’s position regarding the abuse of trusts by indicating that reforms will be made regarding the taxation of both local and offshore trusts which have long been a problem for global tax enforcement due to their flexibility and flow-through nature. National Treasury and SARS are concerned about trusts, largely because of the income-splitting opportunities that trusts afford taxpayers. There are envisaged tax amendments which will impact South Africa’s (hereafter SA) trust landscape and could derail many carefully drafted trust structures. It will thus be important for estate owners to consider these envisaged tax amendments when they come into operation, in order to ascertain the full extent of the implications and then it can also further be determined what the impact of these 1 Income in excess of R7 million, alternatively R75 million in assets. South Afican Revenue Service (hereafter SARS) Strategic Plan (2012/13- 2016/17) 19 available at http://www.sars.gov.za (accessed 6 November 2013) (hereafter SARS Strategic Plan). 2 SARS Strategic Plan 19. 3 2012-2013 budget speech 22 available at http://www.sars.gov.za (accessed 6 November 2013) (hereafter budget speech). 11 changes will be on the effectiveness of the discretionary family trust as an estate planning vehicle in SA in the future. The purpose of this thesis is to determine the impact of the current statutory anti-tax avoidance provisions on the effectiveness of the discretionary family trust as an estate planning vehicle in SA, especially due to the fact that the trust form has been abused in the past for tax avoidance purposes.