Taxes and trusts

[http://www.shutterstock.com]
A Fin24 user wants to know more about the 40% tax on trusts. She writes:

A trust pays 40% income tax. I would like to know whether it is 40% on all income, or 40% on profit?

Fiduciary Institute of South Africa member George
Enslin, director of MTP (SA) and of GFE Financial, responds:

Please note that a trust pays 40% on all income (taxable income) declared.
 
This will include (but is not limited to):

• All investment income (interest income, foreign interest, foreign dividend income and taxable capital gain), as well as
• Income (taxable profit) from trading activities.

*Please note this will be 40% tax on the net profit, and not turnover (gross income) as raised in the question.
 
Example:

1. Interest earned: R10 000
2. Local dividend income earned: R10 000 (this will be taxed at 15% dividend tax before paid to the trust, the amount received by the trust will not form part of the 40% tax calculation)
3. Foreign dividend: R15 000
4. Foreign interest: R15 000
5. Capital gain: R50 000
6. Trading activities: R50 000 turnover
7. Trading expenses (deductible expenses in terms of Section 11 of the Income Tax Act): R20 000
 
No distributions were made to any beneficiaries, and therefore all income will remain taxable in the trust.
 
Solution:

Total taxable income: R95 000 (1+3+4+5+(6-7) as stated above.
 
Further notes:

• Interest earned: R10 000 at 40% tax: R4 000 tax payable
• Local dividend: R8 500 paid to trust after dividend tax deducted (a certificate will be issued to the trust reflecting the dividend tax credit)
• Foreign dividend: R15 000 at 40% tax: R6 000 tax payable
• Foreign interest: R15 000 at 40% tax; R6 000 tax payable
• Capital gain: R50 000 * 50% inclusion (50% for 2013 tax year and 66.6% for 2014 tax year): R 25 000 at 40% tax: R10 000 tax payable
• Trading activities net profit (income R50 000 minus expenses R20 000): R30 000 at 40% tax: R12 000 tax payable.
 
Total tax payable: R38 000.
 
Should you require any additional information please feel free to contact our offices.

 - Fin24

Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query. 

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers. 

Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.




 
 
We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For 14 free days, you can have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today. Thereafter you will be billed R75 per month. You can cancel anytime and if you cancel within 14 days you won't be billed. 
Subscribe to News24
Rand - Dollar
16.68
-0.1%
Rand - Pound
20.07
+0.0%
Rand - Euro
16.95
+0.0%
Rand - Aus dollar
11.54
+0.1%
Rand - Yen
0.12
-0.1%
Gold
1,762.12
+0.0%
Silver
19.64
-0.8%
Palladium
2,137.51
-0.3%
Platinum
921.82
-0.8%
Brent Crude
93.65
+1.4%
Top 40
64,167
0.0%
All Share
70,967
0.0%
Resource 10
63,227
0.0%
Industrial 25
87,430
0.0%
Financial 15
16,160
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders