Page 45 - Nexia SAB&T Trust Guide 2022

Where income received by the trust is paid out to the beneficiaries within the same
tax year, it is treated, for tax purposes, as if it had never been received by the trust,
but rather directly by the beneficiaries. It is therefore advisable for distributions to
be made to the beneficiaries in the same year as income is received.
The trust acts as a conduit through which income flows. Income flowing through
a trust to beneficiaries retains its identity. Therefore, interest received by the trust
is also treated as interest received by the beneficiary and is thus taxed in the
beneficiary’s hands.
A taxable capital gain on the disposal of an asset by a trust could also be
distributed by the trust and taxed in the hands of the beneficiary. However, unlike
normal income, a taxable capital gain cannot flow through multiple trusts.
Where income is taxed in the hands of the trust, any subsequent distribution thereof
will not again attract tax in the hands of the beneficiary.
Anti-avoidance provisions
Anti-avoidance provisions exist to combat the use of trusts for income splitting and
tax avoidance schemes. These provisions will normally be applicable where income
accrues to a person other than the donor as a result of a donation, settlement or
other disposition made (i.e.interest free loans). These provisions may apply where
income accrues to the following persons:
The donor’s spouse, a minor child of the donor, the trust to whom the donation,
settlement or other disposition has been made, and non-residents.
The result of the anti-avoidance provisions are that the income that accrues to the
person’s mentioned above are deemed to be the income of the donor.
Interest-free and low-interest loans to a trust
With effect 1 March 2017, and the introduction of Section 7C of the Income Tax
Act, loans made to a trust by
■ a natural person, or
■ at the instance of that person, a company in relation to which that person
is a connected person, and where that person or company is a connected
person in relation to the trust

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