South African Normal Tax Trusts

The use of Trusts in South Africa has a long history with the main purpose of being a vehicle for growth assets. The benefits of using a trust in the past, for tax planning purposes, were largely to protect such assets from Estate Duty.

In recent years SARS has introduced amendments to the tax legislation which has made trusts far less desirable as vehicles for tax planning structures. This has been achieved by applying punitive rates for capital gains, normal tax rates, and transfer duties. Furthermore, loans from donors to the trust carry the burden of a deemed donations tax if the loans do not bear interest.

All of these measures have diminished the use of trusts for tax planning structures. The asset protection features of the trust remain valid and a trade-off therefore is in place to balance the asset protection features against the tax inefficiency of the trust.