011 463 5566 tonyd@harding.co.za

And estate duty on the assets in a nonresident trust

Election and deemed holding

For SVDP purposes, under s 18 of the Rates and Monetary Amounts and Amendment of Revenue Laws Act 13 of 2016, relief was granted to an applicant (donor or beneficiary) in circumstances in which assets are held by a nonresident discretionary trust, provided that the applicant made an election, to the effect that the trust’s assets be deemed to be held by the applicant ‘for purposes of all tax Acts’.

Such assets would thus be included as the applicant’s assets for purposes of the Income Tax Act (including the capital gains tax, under the Eighth Schedule to the act) and the Estate Duty Act.

Termination of deemed holding

  • This deemed holding applies, under s 18(3)(b), until, amongst other possibilities, ‘the asset is disposed of by the trust’.
  • The disposal value is treated as being the market value of the asset concerned. Thus any capital gain will be taxed in the hands of the applicant for the SVDP.
  • Suspended, by s 18(4), for the duration of the deemed holding of the asset, are the deeming provisions, ss 7(5), 7(8), 25B, and paras 70, 72 and 80 of the Eighth Schedule. Upon the disposal of the assets, these provisions could then apply to assets acquired with the proceeds.
  • Such an outcome is in line with the SARS Binding Private Ruling 071.

Estate duty

The issue arising is whether the deemed holding of the substituted assets persists for estate duty purposes, or whether the connection is terminated. My sense is that, since there are no corresponding deeming provisions in the Estate Duty Act equating with these provisions of the Income Tax Act, and given the wording of s 18(3)(b), the connection is severed for estate duty purposes.
[The only little snag is that the offshore trust would have to be valid—under our law.—Ed]