During the 2016 budget speech Minister Gordhan alluded to the amendment of the taxing provisions pertaining to loans made to trusts to curb the avoidance of estate duty and donations tax.
The draft legislation will apply to “direct and indirect loans made to trusts by natural persons who are connected persons or by a company that is a connected person in relation to such natural persons.”
The effect of the proposed amendments as follows:
- where interest on loans are charged at less than the official rate (8% p/a), the interest not charged, or short charged, will be included as income and taxed in the hands of the lender (interest exemption not applicable). No deduction will be available to the trust as it paid no interest;
- should the lender not recover the aforementioned tax paid from the trust (within a specific period), the lender will also be liable for donations tax on this amount.
The draft legislation will come into force on 1 March 2017. Contact STBB for assistance.