Broadly speaking there are a number of ways in which Trusts in South Africa can be classified. This includes the following classifications:
- An “ownership Trust”, the founder or settlor transfers ownership of assets or property to a trustee(s) (in a fiduciary capacity) to be held for the benefit of defined or determinable beneficiaries of the Trust.
- A “bewind Trust”, 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).
- An “inter vivos Trust” is created during the lifetime of a person by way of an agreement (contract) between the founder and the trustee(s) for the benefit of the beneficiaries.
- A “testamentary Trust” is set up in terms of the Last Will and Testament of a person and comes into effect after such person’s death.
- A “vesting Trust” – Trusts where income, capital gains or assets are vested to a beneficiary in terms of the Trust instrument.
- A “discretionary Trust” – a Trust where the trustee(s) in terms of the Trust instrument, has the right to vest income, capital gains, assets or retained amounts in that Trust, to its beneficiaries.
- A “hybrid Trust” – the majority of Trusts in South Africa will have vested and contingent rights provided for in the Trust instrument. In other words, a combination of the vesting Trust and the discretionary Trust mentioned above.
- Specific application Trusts – Trusts may be classified as a type of Trust based on the application of the Trust, e.g.:
- Trading (Business) Trusts
- Asset-protection or realisation Trusts
- Charitable Trusts
- Land rehabilitation Trusts
- Share incentive scheme Trusts
- BEE Trusts
- Collective investment scheme (CIS) Trusts; or
- 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 mental or physical “disability” as defined in section 6B(1) .
- 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.
- For tax purposes the following types of special Trusts are recognised:
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 when completing the tax return. All Trusts need to register with SARS.
A trustee is the representative taxpayer of a Trust.
How is the income of a Trust taxed?
The income of a Trust may, depending on the circumstances be taxed in the hands of the following:
- Donor (“funder”)
- Beneficiary or
- Trust.
Where the Trust itself is taxed, it is taxed at a flat rate of 45%. Special Trusts are taxed on a sliding scale from 18% to 45% (same as natural persons).
Top Tip: Trusts do not qualify for any of the rebates provided for in Section 6 of the Income Tax Act.
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. Remember to make an appointment.
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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