Are there any Tax Benefits to a Trust?

In essence, a trust is still the most efficient entity towards tax advantages.

Firstly, by transferring all your assets to a trust, there is a huge saving on taxes payable at death. With no personal assets, there is no estate duty, no deemed disposal which trigger CGT and no transfer duty to transfer immovable properties to the respective heirs.

Income tax: Retained income in the trust at the end of the financial year is taxed at a flat rate of 40%, which on the onset appears to be everything but tax efficient.

However, by the trustees exercising their discretion, income can be distributed to the beneficiaries. Income distributed in a trust retains its character on the “conduit principle” and tax is then only paid once in the hands of the beneficiaries, as natural persons, at their marginal tax rate.

Another advantage of distribution of income is that the income can also be split between more than one beneficiary in whatever portion allocated by the trustees, thereby taking advantage of the lower taxation rates of beneficiaries.

Capital Gains Tax: CGT at an effective rate of 26.6% is payable on capital gain at time of disposal of a trust asset. However, once again in terms if the conduit principle and taking into consideration paragraph 80(2) of the Eighth Schedule to the Income Tax Act 58 of 1962, such gain can be distributed to a beneficiary and taxable in their hands at the lesser tax rate.