Broadly speaking there are a number of ways how trusts types in South Africa can be classified. This includes the following classifications:
- An “ownership trust”, under which the founder or settlor transfers ownership of assets or property to a trustee(s) to be held for the benefit of defined or determinable beneficiaries of the trust.
- A “bewind trust”, under which the founder or settlor transfers ownership of assets or property to beneficiaries of the trust, but control over the assets or property, is given to the trustee(s).
- A “curatorship trust”, under which the trustee(s) administers the trust assets for the benefit of a beneficiary that doesn’t have the capacity to do so, for example, a curator placed in charge of a person with a disability.
Trusts can be described in various ways: - The way in which they are formed:
- Inter vivos trust is created during the lifetime of a person
- Testamentary trust is set up in terms of the will of a person and comes into effect after their death.
- The rights they give beneficiaries:
- Vesting trust – the income (both of a revenue and capital nature) or assets of the trust are vested in the beneficiaries. The beneficiaries have the vested rights to the income or assets of the trust.
- Discretionary trust – the trustee(s) usually have the discretion whether to and how much of the income, assets or net trust capital of the trust to distribute to the beneficiaries. In these circumstances the beneficiaries only have contingent rights to the income, assets or net trust capital of the trust.
Top Tip: A combination of both vested and discretionary rights are also possible.
- Trusts can be used for several purposes, for example:
- Trading trusts
- Asset-protection trusts
- Charitable trusts
- Special trusts.
For tax purposes the following types of special trusts are recognised:
- Special Trust Type A – a trust created solely for the benefit of a person(s) with a “disability”, as defined in section 6B(1), where the disability makes it impossible for the person(s) from earning enough money for their care or from managing their own financial matters.
- Special Trust Type B – a trust created solely for the benefit of a person(s) who is a relative of the person who died and who are alive on the date of death of that deceased person (including those conceived but not yet born), and the youngest of the beneficiaries is younger than 18 years on the last day of the year of assessment.
Top Tip: The various ways of describing trusts or trust types are not mutually exclusive. For example, an Inter vivos trust can technically be both a Special Trust Type A and an Inter Vivos Trust; and a Testamentary Trust can be both a Special Trust Type B and a Testamentary Trust. However, from a tax perspective, approved (and qualifying) Special Trusts are taxed differently than normal Inter Vivos and Testamentary Trusts, and it is recommended that the relevant approved (and qualifying) Special Trust should be disclosed as the Trust Type.All trusts need to register with SARS.
A trustee is normally the representative taxpayer of a trust.
How is the income of a Trust taxed?
Depending on the circumstances the income of a trust can be taxed in the hands of the:
- Donor
- Beneficiary or
- Trust.
Where the trust itself is taxed, it’s taxed at a flat rate of 45%. Special trusts are taxed at a sliding scale from 18% to 45% (same as natural persons).
Top Tip: In order to claim the benefits applicable to a Special Trust Type A (for example relief from Capital Gains Tax under certain circumstances), the trustees should apply at a SARS branch for classification.
Need help?
- Read more on how to register as a trust
- See the Guide to the Taxation of Special Trusts
- Read more on how to complete the ITR12T
- Call the SARS Contact Centre on 0800 00 SARS (7277)
- Visit your nearest SARS branch.
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