South African Foreign Trust Distribution Tax Ruling
On 1 July 2015 The South African Revenue Service (SARS) published ruling No 197 whereas a South African resident receiving a distribution from a foreign trust and then subsequently using this to buy foreign property and having a disposition of assets would not be liable for the following taxation;
- income tax on the award from the foreign trust
- donation tax on the subsequent donations
- exemption on the remaining portion of the award and/or the property acquired with this to be excluded from the value of the applications estate for estate duty purposes.
The ruling has not provided much specifics as to the intended transactions. The trust is referred to as only a foreign trust. The applicant is stated as intending to donate an amount to each of the Donees who are only referred to as individuals and thereafter acquire property located outside of Africa with the remaining portion of the award.
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The trust in question only held funds sourced from outside South Africa and the applicant was one of a number of beneficiaries. It was specifically noted in this ruling that SARS would not rule on whether the proposed transaction formed part of any arrangement for the avoidance of tax. This ruling is valid until 28 February 2025.
Careful planning and analysis would be needed for any client considering this avenue.