So is a foreign pension trust not actually a trust? (South African Tax)
Published by: Regan van Rooy
| Unpacking the recent SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... ruling on foreign pensions On 22 August 2022, the South African Revenue ServiceThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... (SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently...) published binding class (“BCR”) ruling 080, which quickly became the talk of the town, or certainly the talk of the SA tax community. So what was so interesting? Well, basically SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... ruled in this BCR that the foreign pension trustA comprehensive look at trusts in international tax law, including definitions, practical examples, key cases, and synonyms. (“FPT”) under question does not qualify as a pension fund, provident fund, or retirement annuity fund, and also, contrary to what is included in the FPT rules, that investors acquire a vested right to the capital and income of the FPT. In other words, the investors are seen as acquiring an interest in a vested trustA comprehensive look at trusts in international tax law, including definitions, practical examples, key cases, and synonyms.. Shock and horror for many as this single change could have wide-ranging consequences from income taxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable... to estate duty. So what is a foreign pension trustA comprehensive look at trusts in international tax law, including definitions, practical examples, key cases, and synonyms.? A foreign pension trustA comprehensive look at trusts in international tax law, including definitions, practical examples, key cases, and synonyms. is typically a hybrid product where a trustA comprehensive look at trusts in international tax law, including definitions, practical examples, key cases, and synonyms. structure is combined with a pension scheme. Many SA individuals have invested in such vehicles over the years for estate planning and wealth protection purposes. How does this impact you? A BCR is only binding on the class that is indicated in the ruling itself, which in this case is the investors in the particular FPT which obtained the ruling. So in theory, if you have another FPT you don’t need to worry. However, although a BCR is only binding on the applicant and the class referred to in the BCR, it does give us a very good idea of how SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... would look at these types of vehicles and how SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... will treat contributions made to, and distributions received from, these vehicles. Previously, contributions to these foreign pension trustsA comprehensive look at trusts in international tax law, including definitions, practical examples, key cases, and synonyms. were allowed without incurring donations tax, and payments by the FPT to the beneficiariesIn tax law, a beneficiary is the person or entity entitled to receive funds or other benefits from an arrangement, such as a trust or a will. Beneficiaries are often named explicitly in legal documents, ensuring that their rights and interests are protected. The concept of a beneficiary also extends to corporate contexts, such as when a company or trust... were often regarded as tax-exempt. So what could be the treatment now? Based on the ruling in the BCR, it appears that SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... is of the view that contributions made by investors into a FPT: – would not qualify for a tax deduction on their annual contributions, – and as a result, investors would be seen to acquire a vested personal right to the income and capital of the foreign pension trustA comprehensive look at trusts in international tax law, including definitions, practical examples, key cases, and synonyms.. This means that any amounts received or accrued by an investor from the FPT would form part of their taxable incomeThe tax base is a fundamental concept in taxation, representing the total amount of economic activity or assets upon which a tax is levied. It is the foundation upon which governments calculate the amount of tax owed, based on factors like income, property value, sales, or corporate profits. Understanding the tax base is essential for tax professionals, businesses, and policymakers,... in SA. Yikes! The impact of this ruling is that when investors die before retirement age, they will be subject to SA capital gains taxCapital Gains Tax (CGT) is a tax imposed on the profit an individual or entity earns from the sale or disposal of a capital asset. This tax is not levied on the total sale price of the asset but rather on the capital gain, which is the difference between the asset’s acquisition cost (or “base cost”) and its sale price.... (“CGTCapital Gains Tax (CGT) is a tax imposed on the profit an individual or entity earns from the sale or disposal of a capital asset. This tax is not levied on the total sale price of the asset but rather on the capital gain, which is the difference between the asset’s acquisition cost (or “base cost”) and its sale price....”) on the deemed disposal of their vested rights. If they die after retirement age, the right to the annuity will attract estate duty and CGTCapital Gains Tax (CGT) is a tax imposed on the profit an individual or entity earns from the sale or disposal of a capital asset. This tax is not levied on the total sale price of the asset but rather on the capital gain, which is the difference between the asset’s acquisition cost (or “base cost”) and its sale price.... on the deemed disposal of the annuity. In summary, there is no deduction on contributions, and there are potentially CGTCapital Gains Tax (CGT) is a tax imposed on the profit an individual or entity earns from the sale or disposal of a capital asset. This tax is not levied on the total sale price of the asset but rather on the capital gain, which is the difference between the asset’s acquisition cost (or “base cost”) and its sale price...., estate duty, and personal income taxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable... liabilities. Should you have any investments in a FPT or you were intending to invest in an FPT and would like to understand the implications of this ruling for you, please do reach out to us. |
