TRUSTS: Questions
Index of Questions:
Number Name Principle Marks Minutes
1 Part A and B Deductions and Losses
2 Yung Family Taxable income – capital gain 21 42
Trust
3 Rockabye Effect on beneficiaries’ taxable 14 28
Trust income
4 Raquel Lopez Theory 7 14
5 Futures Trust Various 13 26
6 Challenger Various 16 32
Trust
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QUESTION 1
PART A
Miranda Tempest Trust
The Miranda Tempest Trust, a resident of the Republic, owns a rent-producing property,
dividend-yielding shares, and interest-bearing securities. Faith Fortune, a resident of the
Republic of South Africa, has a vested right to the rentals earned by the trust. Nobody
has a vested right to the dividends and interest earned by the trust. During the current
year of assessment, it was necessary for the trust to repair its rent-producing property.
This resulted in its rental expenses exceeding its rental income.
The trustees were therefore unable to distribute any net rentals to Faith Fortune. Using
their discretion, they then awarded her R60 000 on a pro-rata basis from the other
receipts and accruals (‘local’ dividends, ‘foreign’ dividends, and interest) of the trust.
Faith Fortune is the granddaughter of the late Miranda Tempest, in terms of who’s will
the Miranda Tempest Trust was created. Faith is nineteen years old and a full-time
university student. She is not married. Besides her awards from the Miranda Tempest
Trust, she has no other receipts and accruals.
A summary of the Miranda Tempest Trust’s transactions for the current year of
assessment is as follows:
ZAR
Rentals 90 000
‘Local’ dividends 60 000
‘Foreign dividends’ (ZAR equivalent) 40 000
Interest 20 000
210 000
Less ‘deductible’ rental expenditure (120 000)
90 000
Less distribution to Faith Fortune (60 000)
Retained receipts and accruals 30 000
The ‘foreign dividends’ relate to a 2% interest in equity and none of the other full
exemptions for foreign dividends apply.
REQUIRED:
Determine the taxable income of the Miranda Tempest Trust and Faith Fortune for the
2024 year of assessment. You may assume that there are no receipts and accruals
other than those mentioned in the question.
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PART B
Tandaza Ramakokoba
Tandaza Ramakokoba created an inter vivos trust and donated an asset to the trust for
the benefit of her three children,
• Vusi, eldest son aged 22 years and unmarried,
• Rendani, daughter aged 17 years and married, and
• Fukama, son aged 14 years and unmarried.
Tandaza and all her children are residents of the Republic. The trust deed provides that
the receipts and accruals of the trust are to be distributed to or used for the benefit of
the beneficiaries equally each year. The entire receipts and accruals of the trust derived
during the 2024 year of assessment were so distributed and used during the 2024 year
of assessment.
REQUIRED:
State in whose hands the amount is taxable. Provide brief reasons.
QUESTION 2 (21 marks; 42 minutes)
Minato Yung (65 years old), a South African resident, founded the Yung Family Trust. In
terms of the trust deed, the beneficiaries of the trust are the following individuals:
• Kushina (63 years old as at 29 February 2024), Minato’s wife to whom he is
married out of community of property;
• Sakura (17 years old as at 29 February 2024), Minato’s daughter and a student at
Pretoria Girls High;
• Naruto (25 years old as at 29 February 2024), Minato’s son
All beneficiaries are tax residents of South Africa. You may assume that no other
income accrued to the trust, any of the beneficiaries, or Minato during the 2024 year of
assessment other than information below. You may also assume that Minato’s only
intention in founding the trust was to safeguard assets and therefore provide for his
family.
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During the trust’s 2024 year of assessment, it owned the following assets:
1. On 31 July 2019, Minato’s mother, Chiyo (85 years old), donated R2 000 000 to
the trust. In terms of the trust deed, the trust should retain 30% of the local interest
income earned each year for the benefit of Sakura to be paid to her when she
turns 21 years old. In the event that Sakura passes away before the age of 21,
Naruto will become entitled to the retained interest. The other 70% of interest
income should be distributed evenly between Sakura and Naruto.
2. In October 2023, Minato donated his holiday home to the family trust. The property
was registered in his name before the donation. Minato bought the holiday home in
January 2010 for R4 500 000. During January 2011, Minato built a swimming pool
on the property at a cost of R30 000, but later decided that it caused too much
maintenance and had it demolished. The holiday home had a market value of
R6 000 000 on the date of the donation to the trust. In terms of the trust deed, net
rentals should be distributed equally between all the beneficiaries of the trust, but
Minato has the ability to revoke any of the beneficiaries’ right to rental income.
Minato made no other donations during his 2024 year of assessment and paid his
donations tax on the holiday home within the prescribed time.
(Please note that s 7(6) is not examinable – this is included for awareness only)
3. Minato’s friend, Obito, sold his local share investment in AJ Ltd to the Yung Family
Trust for R1 200 000 (a market-related selling price). The shares were transferred
into the trust’s name on 30 June 2022. The trust deed stipulated that Kushina
should receive R4 000 paid annually from dividends received from this investment.
The remaining dividends may be paid to beneficiaries in terms of the trustees’
discretion.
4. Kushina donated R1 000 000 to her best friend, Konan, on condition that Konan
would donate a patent, registered in South Africa, to the value of R1 000 000 to
the Yung Family Trust. The patent earns royalty income. The agreement went
ahead on 31 October 2022. The trust deed stipulates that 50% of any royalty
income that accrues to the trust during the year should be distributed equally to
Naruto and Sakura and that any remaining amount should be retained for Sakura’s
benefit in the trust. Sakura may request payment of the retained amount at any
time.
Please note that s 7(4) is not examinable – this transaction is included for
awareness only
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The table below details the income distributed during the trust’s 2024 year of
assessment:
TOTAL Interest Rental Dividend Royalty
income income income income
Net Income R434 000 R200 000 R60 000 R74 000 R100 000
Distributions:
Kushina R44 000 - R20 000 R24 000* -
Sakura R115 000 R70 000 R20 000 - R25 000
Naruto R125 000 R70 000 R20 000 R10 000 R25 000
RETAINED R150 000 R60 000 - R40 000 R50 000
* - Includes the annual payment of R4 000 (refer to point 3 above).
REQUIRED:
(a) Calculate the taxable income of the following taxpayers for their 2024 year of
assessment:
1. Sakura;
2. Kushina;
3. Naruto; and
4. The Yung Family Trust.
Show all inclusions and exemptions separately and support each inclusion and
exemption with reference to a section of the Income Tax Act. Where an amount is
distributed to a beneficiary or retained in the trust, but it is not taxable in the hands
of such beneficiary or the trust, it should be clearly indicated and should also be
supported with reference to legislation. (14)
(b) Calculate the capital gain arising in Minato’s hands due to him donating his holiday
home to The Yung Family Trust. Clearly show nil effects. (5)
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QUESTION 3 (14 marks, 28 minutes)
Elaine Walker, a 70-year-old retired high school teacher, established the Rockabye
Trust (“the Trust”), an inter vivos, discretionary trust for the benefit of her three
grandchildren who are siblings and residents of the Republic:
• Alan: her 20-year-old grandson, who is currently studying Musical Arts at the
University of Stellenbosch (Cape Town, South Africa).
• Daya: her 22-year-old granddaughter.
• Sheera: her 16-year-old granddaughter, who is still attending school in Pretoria,
South Africa.
The Trust was created on 30 March 2021 and Elaine’s son, Carl Walker (the father of all
the above beneficiaries, aged 49), is the only trustee of the Trust.
The following is a summary of the net income and distributions of the trust for the 2024
year of assessment:
Local Foreign Local Rental
dividends dividends interest income
Notes: 1 2 3 4
R R R R
Income: 18 000 48 000 120 000 255 000
Less (18 000) (30 000) (50 000) -
distributions:
Alan (6 000) (10 000) (20 000) -
Daya (6 000) (15 000) (30 000) -
Sheera (6 000) (5 000) - -
Retained income: - 18 000 70 000 255 000
Notes:
1. Elaine donated her shares in Just Like Fire Ltd, a South African company listed
on the JSE to the Trust upon establishment of the Trust. The dividends received
in respect of these shares have been distributed as annuities. The local dividend
income of R18 000 was received at the beginning of the 2024 year of
assessment and the distributions were made by way of a monthly annuity.
2. Elaine also donated foreign shares to the Rockabye Trust during the 2022 year
of assessment. The shares are held in Bandit Plc, a UK resident company that
manufactures children’s clothes. None of the section 10B(2) exemptions apply to
the dividends in respect of these shares. No beneficiary has a vested right in the
retained foreign dividend income. You may assume that all amounts have been
translated correctly.
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3. The local interest is earned on a fixed deposit that Elaine donated to the Trust
upon establishment of the Trust. The trust deed stipulates that the retained
interest on this investment must be kept in the account, and that Sheera will
receive the accumulated retained amount on her 21 st birthday. Should she pass
away before that date, the retained income will be distributed equally between
her siblings. Alan and Daya have no vested right in this interest income.
4. Carl owned a holiday home in Cape Town, which he donated to the Trust on
30 June 2023, when the market value of the property was R2 900 000. Carl
originally purchased the holiday home in 2007 for R975 000. Carl paid R560 000
(assume correct) donations tax on this donation. The Trust rents the property out
to third parties. Each beneficiary has a vested right in one-third of the retained
income generated by this property.
REQUIRED: (14)
Calculate the effect of the above on the taxable income for each of the following
taxpayers for the 2024 year of assessment:
• Sheera Walker
• Carl Walker
• Elaine Walker
Note:
⎯ Show all inclusions, exemptions and nil effects separately.
⎯ Indicate if an exemption is not applicable, supported with a reason.
⎯ Show all relevant calculations and round all amounts to the nearest Rand.
⎯ Give references to legislation to support your answers.
⎯ You may assume that none of the above taxpayers disposed of assets during the
2024 year of assessment other than the mentioned disposals.
⎯ All taxpayers are South African residents except where indicated otherwise.
⎯ You may assume that the Trust had no expenses.
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QUESTION 4 (7 marks, 14 minutes)
Raquel Lopez approaches you for advice.
Raquel is a single mother. She has two children: Mark Lopez, 8 years old and Fiona
Lopez, 20 years old. Neither child is disabled. Raquel wants to ensure that if anything
happens to her, her two children are taken care of. She has heard that founding a trust
is one way of doing this.
Raquel wants to leave all her assets and the income from her assets to her children in
equal shares in the case of her death. She does not want anyone else to be in charge of
her children’s financial welfare and as such she wants to specify exactly how her assets
and income should be applied, for the benefit of her children, in the event of her death.
REQUIRED:
• Briefly advise Raquel on the potential benefit of using a trust.
• Explain to Raquel which type of trust would be most appropriate to meet her
needs.
• Provide Raquel with a summary of how and when the trust would be taxed.
Advise Raquel on this matter using the headings set out below:
• Benefits of a trust (1)
• Type of trust (2)
• Tax summary (4)
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QUESTION 5 (adapted from prior Exam) (13 marks; 26 minutes)
The Futures Trust (“Trust”) is an inter-vivos discretionary trust created in 2011 for the
benefit of Mr McGraw’s grandchildren. The trustees of the Trust are Mr McGraw (76
years old and a resident of South Africa), his accountant, Mrs Ebrahim and his lawyer,
Mr Wandera.
The beneficiaries of the Trust are Mr McGraw’s three (3) grandchildren and are all
residents of the Republic:
• Jason, currently 15 years old and lives Cape Town with his mother and father
• Heather, 16 years old and lives in Pretoria. Heather is currently in Grade 11; and
• Aimee, 25-year-old and lives in Johannesburg. Aimee has a disability as defined in
section 6B of the Income Tax Act.
Mr McGraw donated the following to the Trust in 2011:
• Shares in a local company, Bricks (Pty) Ltd; and
• A shopping centre.
Mr McGraw’s brother, Steyn, a well-known author, bequeathed the copyright in his
published book and a cash amount to the Trust when he passed away in 2014. The
trust invested the cash in various interest-bearing investments.
The trustees exercised their discretion and distributed R140 000 (pro rata from all
income excluding dividends) to each beneficiary. The trustees also paid an annuity to
Aimee from the dividends received from Bricks (Pty) Ltd to which Aimee is entitled to
according to the trust deed.
The trust deed also stipulates that no beneficiary has a vested right to the income of the
trust except for the rental income, which vests in the beneficiaries in equal shares and
will be paid out in 2028. If a beneficiary should die before 2028, the accumulated rental
will be paid to his/her estate.
(Please turn over)
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The following distribution table shows the net income received by the Trust for the 2024
year of assessment as well as the distributions made during the year:
Dividends Royalty
Rental
from income Interest
from
shares in from from Total
shopping
Bricks copyright investments
centre
(Pty) Ltd in book
Net income R80 000 R650 000 R322 000 R52 000 R1 104 000
Distributions
• Jason -R88 867 -R44 023 -R7 110 -R140 000
• Heather -R88 867 -R44 023 -R7 110 -R140 000
• Aimee -R88 867 -R44 023 -R7 110 -R140 000
Annuity to -R50 000 -R50 000
Aimee
Retained in R30 000 R383 399 R189 931 R30 670 R634 000
Trust
REQUIRED:
1. On the assumption that the beneficiaries do not earn any other income other
than that provided above, indicate the effect of the information on the taxable
income of:
a) Aimee
b) Mr McGraw
c) Jason 10
d) Futures Trust
• Show inclusions and exemptions separately
• Provide reference to sub-sections of section 7, where applicable.
2. State why the Futures trust will not be classified as a “special trust” for income
tax purposes for the 2024 year of assessment. 2
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QUESTION 6 (adapted from prior Exam) (16 marks; 32 minutes)
Christa McAuliffe, a South African resident, died in 2013 at the age of 70. In terms of
her last will and testament, the Challenger Trust was created for the benefit of her
grandsons. Christa’s will stipulated that a rental property in Cape Town with a market
value of R6 000 000 should be transferred to the trust. Christa’s daughter, Caroline
Corrigan, and two other independent people are the trustees of the trust.
The beneficiaries of the trust are:
Name Relationship to Christa Age at 29 February 2024
Scott Corrigan Grandson 28
Steven Corrigan Grandson 21
Edward Corrigan Grandson 15
Caroline (55 years old and a South African resident) is Scott, Steven, and Edward’s
mother. Scott emigrated to Australia on 5 March 2024 with his wife. Steven and Edward
are unmarried and reside in South Africa.
During the 2021 calendar year, Caroline donated a rental property situated in
Johannesburg with a value of R3 200 000 to the trust.
The trust deed contains the following:
● Caroline will annually receive R90 000 per minor grandson. This amount must be
used for educational purposes, up to and including the respective years in which the
boys reach the age of 18 years. The amount is awarded to Caroline in her capacity
as guardian.
● As the grandsons reach the age of 18, each must receive R120 000 annually.
● An annual allowance of R20 000 must be donated to a charity.
● The trustees must exercise their discretion regarding the distribution of retained
earnings.
● On 1 March 2028, the capital and accrued retained earnings must be divided equally
between the grandsons still alive on that date.
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The trustees handled the relevant distributions under the trust deed in respect of the
2024 year of assessment. In addition, they exercised their discretion and disbursed a
further R140 000 to Steven Corrigan who was in a car accident and needed the money
for rehabilitation. All distributions handled by the trustees were made pro rata from the
receipts and accruals of the trust.
The trust earned net rental of R1 200 000 during the 2024 year of assessment. The
following distribution table was drafted:
Total Rental: Cape Rental:
Town property Johannesburg
property
Net rental income R1 200 000 R960 000 R240 000
Distributions in terms of
trust deed
Scott (R120 000) (R96 000) (R24 000)
Steven (R120 000) (R96 000) (R24 000)
Edward (paid to (R90 000) (R72 000) (R18 000)
Caroline)
Chosen Charity (R20 000) (R16 000) (R4 000)
Additional distributions
Steven (R140 000) (R112 000) (R28 000)
Retained earnings R710 000 R568 000 R142 000
Further information relating to Caroline Corrigan for the 2024 year of assessment:
Salary earned R332 000
Taxable lump sum from retirement annuity fund. R390 000
Upon reaching the age of 55 in 2024, a taxable lump sum of
R390 000 accrued to Caroline on 29 February 2024. This is not the
first time she received a lump sum. During 2016 she received a
taxable withdrawal lump sum benefit of R250 000. During that year
(2016) the tax on the withdrawal lump sum benefit amounted to
R40 000. Caroline stopped contributing to the retirement annuity fund
in 2021 and thus did not make any contributions to the fund this year.
All contributions made to the fund up to and including the 2021 year
of assessment have been allowed as a deduction.
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REQUIRED:
a) Calculate the normal tax liability of Caroline Corrigan for her 2024 year of
assessment. Provide reference to the legislation only where Caroline is 8
taxed on an amount accruing to her from the Challenger trust (if any).
b) Calculate the taxable income of:
a. Scott Corrigan
b. Steven Corrigan
c. Edward Corrigan
5
for their 2024 year of assessment.
● Provide reasons for nil effects.
● No references to legislation are required.
c) Discuss the normal tax liability of the Challenger Trust, if any, for its 2024
year of assessment. Provide reference to legislation. 3
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