Page 16 - Nexia SAB&T Trust Guide 2022

TAX TREATMENT OF SPECIAL TRUSTS

Unlike conventional or “ordinary” trusts which are taxed at a flat rate of tax (45%
for the 2023 year of assessment), both Type A and Type B special trusts are taxed
on the same sliding scale applicable to natural persons, except that the rebates
medical tax credits and interest exemptions do not apply.

For Capital Gains Tax purposes, both the Type-A trust and Type-B trusts are treated
as an individual, with a capital gains tax inclusion rate of 40% (2023 year of
assessment). The distinction between a Type-A trust and a Type-B trust is important
however, in that a Type-A trust qualifies for certain further relief from Capital Gains
Tax (CGT) while a Type-B trust does not qualify for such relief. Type A trusts will be
allowed the CGT exemption for primary residence (where a primary residence is
disposed of, the capital gains relating thereto of up to R2 million is exempt from
CGT), should all other requirements also be met in order to qualify. The Type-A
trust also qualifies for the CGT annual exclusion (R40 000 for the 2023 year of
assessment). The property legally and beneficially owned by a Type-A trust will
be a “primary residence” of that trust, provided the beneficiary or a spouse of
the beneficiary uses the property mainly (more than 50%) for domestic (that is,
residential) purposes.

On disposal of personal-use assets by Special Trusts, capital gains or losses
thereon may be disregarded for Special Trusts Type A, but not for Special Trusts
Type B. In addition, a Special Trust Type A may disregard capital gains or losses on
compensation for personal injury, illness, or defamation of the beneficiary of that
trust, but this is not the case for a Special Trust Type B.
Only a Type-A Special Trust is excluded from the application of section 7C – and
not a Type B Special Trust.

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