The taxation of trusts in South Africa: Critical analysis of Section 7C

In: http://hdl.handle.net/11427/29608

Abstract

The purpose of this dissertation was to critically analyse the recently introduced section 7C of the Income Tax Act, 58 of 1962 (ITA) with the aim of determining whether section 7C achieved its stated objective. Although aimed at tax abuse through the use of trusts, the section is a further limitation on trusts, a vehicle that has been affected by numerous legislative amendments over the past couple of decades. The introduction of section 7C of the ITA is directly in line with the existing section 7 as well as international trends including the Base Erosion and Profit Shifting (BEPS) final reports. As globalisation accelerates and data becomes more readily available to both developed and developing economies the transparency of structures will become more evident and the previously utilised loopholes will close. Additionally, the current economic downturn in South Africa (SA), and globally, is likely to result in more aggressive revenue authorities. Taxpayers will have to ensure that they receive appropriate advice and that tax is considered at the outset of structure development opposed to being an afterthought following the commercial agendas. Further, there is currently room for the application of sections 7C, 7(5) and 7(8) simultaneously in specific circumstances which may result in the application of both donations and income tax. The question remains as to whether the application of these section is fair and/or correct. I think it is probably difficult to argue that it is not at this stage. Finally, it is submitted that the question raised by this dissertation – does section 7C of the ITA achieve its stated objective (the prevention of tax evasion through interest free loans) has been answered in the affirmative.