SARS introduced the concept of a Special Trust to bring about more favourable tax treatment for certain trusts. Unlike conventional trusts, which are taxed at a flat rate, a Special Trust is taxed on the same sliding scale applicable to natural persons.
SARS recognises the following types of Special Trusts for tax purposes:
Special Trust Type A
This is a trust created solely for the benefit of a person(s) with a mental or physical “disability”, as defined in Section 6B(1) of the Income Tax Act, where the disability makes it impossible for the person(s) from earning enough money to care for themselves or to manage their financial affairs. Should there be more than one qualifying beneficiary of this trust, the beneficiaries should be related to each other.
These trusts can be either testamentary or inter vivos trusts and are sometimes created as a result of a Court order in favour of a specified natural person with a disability, to assist in the management of their affairs.
This type of trust will cease to be a Type A trust as from the beginning of the year of assessment in which the last beneficiary dies.
These trusts are taxed on normal person tax scales.
Special Trust Type B
This is a trust set up in terms of a person’s will, specifically for the benefit of minors who are relatives of the person who died, who are alive on the date of death of the deceased person (including those conceived but not yet born), and the youngest of the beneficiaries is younger than eighteen years on the last day of the year of assessment.
This type of trust will cease to be a Type B trust as from the beginning of the year of assessment in which the youngest of its beneficiaries turns eighteen.
Although these trusts are taxed on normal individual person tax scales, they offer no benefits as far as Capital Gains Tax is concerned.