Trusts

Who is taxed on income that accrues to a trust when the donor provisions under Section 7(3) apply?

• Beneficiary

• Donor

• Trust

• None of the above

What is the tax rate applied to an ordinary trust?

• 18%

• Sliding scale from 18% to 45%

• 45%

• 25%

Under Section 25B(2), who is taxed when income is distributed to a beneficiary in a discretionary trust?

• the Founder

• the Trust

• the Donor

• the Beneficiary

Which of the following trusts is taxed on a sliding scale similar to individuals tax rates?

• Testamentary Trust

  (Mortis Causa)

• Living Trust

  (Inter Vivos)

• Special Trust

• Ordinary Trust

A contingent right to trust income is sufficient for the income to be taxed in the beneficiary’s hands.

• TRUE

• FALSE

Answer explanation

Only a vested right results in taxation in the beneficiary’s hands

The conduit principle means that income flowing through a trust to a beneficiary retains its nature in the hands of the beneficiary

• TRUE

• FALSE

A trust is subject to normal tax as it is regarded as a ‘person’ under Section 1 of the Income Tax Act.

• TRUE

• FALSE

A donor donates an income-producing asset worth R1,000,000 to a trust. The trust generates R100,000 in interest income for the year, which is not distributed to any beneficiary. In whose hands will the R100,000 be taxed?

• the Beneficiary

• the Trust

• the Donor

• the Founder

Answer explanation

s7(5) retained amounts in the trust that no beneficiary has a vested right to will be taxed in the donor's hands

A discretionary testamentary trust earns rental income of R200,000. The trustees distribute R150,000 to the beneficiaries, while R50,000 is retained in the trust. In who's hands will the amounts be taxed ?

• the Donor

• the Beneficiary

• the Trust

• the Founder

Answer explanation

A testamentary trust is created in terms of the donor's will which means the trust is only set up after the donor's death thus the donor provisions do not apply and no beneficiary has a vested right to the retained amounts therefore it is taxed in the hands of the trust.

A special trust generates local dividend income of R80,000 and distributes it to beneficiary 1. What is the effect of the dividend income in the beneficiary’s taxable income ?

• Rnil

• R80 000 dividend income

• R35 556 Net dividend income