The effectiveness of the introduction of Section 7C into the Income Tax Act to curb the avoidance of taxation through the use of trusts
Date
2017
Authors
Mukoma, Tshepisho Lucy
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Abstract
Trusts are an essential tool for estate planning. The interest in trust structures by taxpayers has increased over the years and the South African Revenue Services (‘SARS’) and National Treasury (‘NT’) have placed trusts on their agenda due to their perceived tax avoidance resulting from the use of trust structures. Section 7C was introduced into the Income Tax Act 58 of 1962 (as amended) (‘the Act’) in order to curb the avoidance of estate duty. However, the work undertaken by SARS and NT over the years and the insertion of this section in the Act, created an impression that there is avoidance of taxation through the use of trust structures. This study will interrogate the provisions of s 7C in order to determine the effectiveness of this section in curbing the avoidance of estate duty and/or tax through the use of trust structures. The well thought out manner in which this section was drafted and the existence of other tax provisions in the Act which pertain to trusts and the funding mechanisms of trusts suggest that this new inclusion is a convenient and easy manner to monitor the abuse by SARS and NT and subsequently curb the perceived abuse. The interplay of this section with ss 7 and 31 of the Act indicate a risk of unintended double taxation. This and the circumvention options that taxpayers may embark on are matters that may render the section ineffective, although it is evidenced that this section closes that last door that remained open for taxpayers in respect of funding a trust.
Key Words: Tax avoidance, estate duty avoidance, National Treasury, SARS, National Budget Speech, Davis Tax Committee Reports on estate duty, Interest-free and low interest loans, Affected Transactions (s 31), Donor attribution rules (s 7), Donations and donations tax, Double taxation.
Description
A research report submitted to the Faculty of Commerce, Law and Management, University of the Witwatersrand, Johannesburg, in fulfilment of the requirements for the degree of Master of Commerce (Specialising in Taxation)
Johannesburg, 2017
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Citation
Mukoma, Tshepisho Lucy (2017) The effectiveness of the introduction of Section 7C into the Income Tax Act to curb the avoidance of taxation through the use of trusts, University of the Witwatersrand, Johannesburg, <https://hdl.handle.net/10539/24402>