President Jacob Zuma has signed The Taxations Laws Amendment Bill (TLAB) into law on 11 January 2017. The TLAB will be implemented effectively from 1 March 2017.
A new section, Section 7C, has also been introduced. This section specifically deals with Interest Free or Low Interest Loans to Trusts.
SUMMARY OF SECTION 7C:
EXEMPTIONS APPLICABLE TO SECTION 7C
a) That trust is a Public Benefit Organisation approved by the Commissioner in terms of Section 30(3) of the Act, or
b) That loan, advance or credit was provided to the trust by a person by reason of, or in return, for a vested interest held by that person in receipts and accruals and assets of that trust; and
c) The trust is a Special Trust as defined in paragraph (a) of the definition of a special trust, or
d) The trust used the loan, advance or credit wholly or partly for purposes of funding the acquisition of an asset; and
e) That loan, advance or credit constitutes an affected transaction as defined in Section 31(1) that is subject to the provisions of that section, or
f) That loan, advance or credit was provided to that trust in terms of a Sharia compliant financing arrangement, or
g) That loan, advance or credit is subject to the provisions of Section 64E(4) (Deemed Dividend Provisions)
PRACTICAL EXAMPLE OF SECTION 7C
Trustee A made a loan to his trust amounting to R 10 000 000 which was utilised by the trust to purchase various assets. He charges interest at 0%. The official rate, as defined, is 8%.
|Value of Loan Account:||R 10 000 000|
|Deemed Interest / Donation:||R 800 000 (R 10 000 000 x (8%-0%))|
|Taxable Donation||R 800 000|
|Donations Tax @ 20%||R 160 000 (on an annual basis)|
From the example above it can be determined that if proactive actions are not implemented by such persons affected by the new Section 7C, severe tax liabilities will be the consequence.
We therefore strongly advise that you contact us at MMS Group to discuss the implications specifically applicable to your Trust so that we can advise you on the most tax efficient solutions available for your Trust’s financial position and long term strategies.
Jacques van Wyk
MMS Trust Services (Pty) Ltd
T: 011 831 2346 | F: 0866 471 071 | E: firstname.lastname@example.org
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)