The South African Revenue Service (SARS) has published a draft guide on the taxation of “special trusts,” which has been prepared to helps users in gaining a more in-depth understanding of their taxation, with particular reference to income and capital gains taxes.
Special trust formed solely for the benefit of individual who suffer from a certain mental sickness or serious physical disability. In order to qualify as a special trust, the beneficiary’s illness or disability must incapacitate that beneficiary from earning sufficient income for his or her maintenance, or from managing their own financial affairs. These trusts are referred to in the guide as “type-A trusts.”
IRAS ensure that, while a single rate of tax of 40 percent for trusts was started with effect from the 2003 year of assessment to combat the practice of income splitting through the use of multiple trust structures, this higher rate of tax does not, however, apply to special trusts which are taxed under the same rate structure as natural persons. They also confirms that the main importance of the distinction between a type-A trust and a type-B trust is because a type-A trust qualifies for certain relief from capital gains tax, while a type-B trust does not qualify for such relief.
