Page 59 - Bespoke EPG 2017 Digital

Capital gains tax and the discretionary trust

■■ As soon as a beneficiary has received a vested right to an asset through the
exercising of the discretion of the trustee(s), this will be a deemed disposal
and capital gains tax will be payable on the gain.

Capital gains tax and donations

■■ A donation may be subject to both donations tax and capital gains tax, as a
donation constitutes a disposal.

■■ Where a person donates an asset to another, or for a consideration not
measurable in money, or to a person who is a connected person in relation to
that person for a consideration that does not reflect an arm’s length price, then:

◆◆ The donor must be treated as having disposed of the asset for proceeds
equal to the market value of the asset at the date of disposal and the
person who acquired the asset must be treated as having acquired it at a
cost equal to that market value.

■■ Donations between spouses are subject to roll-over relief.

■■ A donation which takes the form of writing off a debt which is regarded as
gratuitous in nature, therefore regarded as a donation will not also be subject
to capital gains tax. This will also apply to the utilisation of the annual
R100 000 donation tax exemption to reduce a debt.

■■ This is important to bear in mind when drafting a Last Will and Testament, as
if a beneficiary is relieved of an obligation to repay a loan to the deceased
estate in the Will, there wil not be a capital gain in the hands of the
beneficiary if the debt in question was included as property of the testator for
estate duty.

Capital gains tax and liquidity

■■ In order to prevent liquidity problems caused by excessive capital gains tax:

◆◆ Where the capital gains tax liability exceeds 50% of the net value of the
estate (before taking capital gains tax into account), and

◆◆ The executor is required to dispose of an asset to pay the capital gains
tax,

56