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Connections via trusts · Tax Break: South African tax for professionals

• 0:11
  Welcome and thank you for joining me for Tax Break.
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  This is a podcast about South African Tax, 4 South African tax
• 0:16
  professionals and practitioners. My name is Peter Venezuelan, and
• 0:20
  in each episode I share my thoughts with you on a topic
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  called a recent development in South African tax.
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  And I tried to keep the episode short enough that you can listen
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  to them to them whenever you've got a few minutes in your
• 0:32
  calendar. Normally at the end of the
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  episode, I asked that if you've liked the episode of the podcast
• 0:38
  that you forward the link in your podcast platform that
• 0:42
  you're using do another person. One of the listeners, however,
• 0:47
  told me in the app. I realised as soon as I read the
• 0:50
  e-mail that that's actually the way it works.
• 0:53
  I also do the same on the podcast that I listen to.
• 0:56
  As soon as the real content ends, that's where people stop
• 0:59
  listening to the podcast. So I've decided to put this
• 1:02
  request at the beginning of the podcast now.
• 1:04
  So if you like the podcast, I would appreciate it very much if
• 1:09
  you send the link to the podcast to one other person that you
• 1:13
  think might also enjoy it. And in that way we can grow the
• 1:17
  the listener base. Now our topic for this week is a
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  a short topic. It's school holidays this week,
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  so I suspect a lot of you might be on leave.
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  It's also the The Art Club festival here in Potchefstroom
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  where I stay and the university is closed.
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  So I think in my mind most people or a lot of people are in
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  holiday mode. So I've had this short episode
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  in my back pocket for a while that I thought that we could
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  speak about whenever there's a week like this.
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  No, often when you when when I'm dealing with questions about
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  trusts and related party relationships.
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  So in other words, where persons are concerned that because of
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  the connectedness of persons to the trust, they could be certain
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  tax implications to consider. One of the first things that
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  they mentioned to me is who are the trustees of the trust.
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  Now when we look at anti avoidance rules for tax
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  purposes, so for example rules that deem disposals depend at
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  market value, your deemed donation rules in Section 7,
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  you're deemed dividend flows even in Section 64 E they all
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  employ the concept of connected persons to to to determine
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  whether these rules would apply or not.
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  So if we then look at the definition of connected person
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  in Section 1 and we specifically going to look at that definition
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  in the context of of a trust. The definition.
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  If we maybe just look at how it's been out, it's drafted to
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  designed defines the relationship in One Direction,
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  but there's a specific paragraph at the indoor specific
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  requirement that the end that also states that it also applies
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  in the other direction. So essentially it if if it
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  defines A to be connected to B, then it means B is also a
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  connected person to A. If we then move on to the
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  specific paragraphs of this definition that deal with
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  trusts, it states that in relation to a trust, the
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  beneficiary of the trust would be a connected person.
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  So if I'm the beneficiary of a trust, then I'm connected to the
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  trust and the trust is going to connected person to me.
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  It then goes on a bit further to say that any connected person in
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  relation to such a beneficiary is also connected to the trust.
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  So if we take the example a step on we, I'm holding shares in a
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  company and I'm holding more than 20% of the shares.
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  So I'm connected to the company. Then the second requirement
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  means that the company that's connected to me is also now a
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  connected person to the trust. Then there's a further
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  requirement that says in relation to a connected person,
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  in relation to a trust, any other person who is a connected
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  person in relation to such trust, these two persons are
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  also connected persons to each other.
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  So if we continue with them, my same example still let's say the
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  trust holds the shares of another company, company Z.
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  So the trust is connected to company Z because of the fact
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  that the trust holds more than 20% of the shares of companies
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  8. I'm connected to the trust
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  because I'm a beneficiary. I'm also connected to company X
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  because I'll chase in company X. What the effect of this loss
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  requirement is that companies at the connected person to the
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  trust and company X the connected person to me as a
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  beneficiary to the the of of the trust.
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  Those two companies are connected to each other.
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  So a few pointers on this definition do to then close off
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  the short episode. I think the first important
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  point to take from this definition is that the
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  connection is established for connected persons on the basis
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  of persons who are beneficiaries, not the trustees.
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  So not to say that who the trustees are not sometimes
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  relevant for tax purposes. If we look for example at a
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  foreign trust, the trustees of that foreign trust would be
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  involved in the management of that trust and they could well
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  play quite a big role in in determining where the place of
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  effective management is. But when it comes to connected
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  persons, the primary connection that you're looking for is The
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  Who are the beneficiaries. The second requirement or the
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  second point to take from this definition is that as soon as
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  you've got the presence of a trust in in some sort of a
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  structure, you need to be very careful when you assess
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  connected person relationships. So as soon as the trust is
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  present, it does cause the net quite wide.
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  So there's a few things that you'll have to consider.
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  You'll probably need the trust deed to establish who the
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  beneficiaries are, but you also need to go quite a few steps
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  further perhaps to determine who are the connected persons.
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  Do these beneficiaries because the the presence of the trust
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  does create this interconnectedness between these
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  persons. That's it for this episode.
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  If you have any comments or questions, please send me an
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  e-mail. My e-mail address is in the show
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  notes. And as always, nothing in this
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  podcast is intended to be tax advice.
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  It's for awareness purposes only.
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  Until next time, goodbye.