Changes to Tax Laws Impacting Distributions to Non-Resident Beneficiaries from South African Trusts Effective 1 March 2024
The recent amendments to South African tax laws that affect distributions from local trusts to non-resident beneficiaries, effective 1 March 2024, will alter the taxation framework for trust income and capital gains, requiring trustees and beneficiaries to adapt their financial strategies.
Overview of Section 25B of the Income Tax Act
Section 25B of the South African Income Tax Act governs the taxation of income earned by trusts and distributed to beneficiaries. Historically, this section allowed income and capital gains from a trust to “flow through” to beneficiaries, ensuring that taxation occurred at the beneficiary’s level rather than within the trust itself.
Key Changes Effective 1 March 2024
- Income Tax Treatment of Distributions
- From 1 March 2024, income distributed by a South African trust to non-resident beneficiaries will no longer retain its flow-through nature.
- Such income will now be subject to taxation at the trust level in South Africa, regardless of the beneficiary’s residence.
- Capital Gains Tax (CGT)
- Capital gains realized by the trust and distributed to non-resident beneficiaries will also be taxed in the trust.
- The trust, rather than the non-resident beneficiary, will bear the CGT liability, often at a higher effective rate. Beneficiaries will no longer be able to apply exemptions or relief under double tax treaties directly.
As we approach the festive season, we would like to inform you that our offices will be closed from 2 pm on December 20, 2024, and will reopen on January 6, 2025.
Warm regards,
The Pinion SA Team
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