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In which investment structure do you pay the least amount of tax?

It is ideal to own your properties in a property company and have the property company owned by a Holdings Trust. In this way, you pay tax at a company’s tax rate, which is significantly lower than in your own name (in most cases).

This is also ideal when you do not want to pay out profits but reinvest them to expand your property portfolio further. Because a trust owns the company, you can also sell the entire company one day and use the conduit principle to significantly reduce your capital gains tax.

What is the conduit principle?

According to SAICA, the conduit principle is “If income accrues to a trust and the trustees award it to one or more beneficiaries in the same year, the income retains its nature in the hands of the beneficiary.”

This means you do not get taxed in the trust, but the various beneficiaries get taxed in their personal capacity after income splitting or capital gains tax splitting has been applied and where higher exemptions are applied and lower inclusion rates for capital gains tax purposes, reducing the overall tax burden.

How do I pay less tax in my property portfolio?

You can pay less tax in your property portfolio by ensuring that:

• You have the correct structure in place, and your properties are acquired in the correct entities so the lowest tax rates can be applied.
• All tax-deductible expenses are properly recorded to reduce your net profit in the property portfolio.
• You keep track of accumulated losses of previous years to apply to the first year that the property entity makes a net profit to reduce your taxes due.
• You maximise unrealised gains and minimise realised gains through refinancing and expansion to keep your entities just above break-even and pay as little taxes as possible.

What is Section 7C interest?

Section 7C is an anti-avoidance provision designed to address a situation where a loan is made by a related person to the trust interest-free or at a rate lower than the official rate of interest as defined in paragraph 1 of the Seventh Schedule to the Act (Repo + 1%). The interest, unlike normal interest, is treated like a donation and will be exempt up to R100 000 per annum.

Can I claim depreciation on assets in my Family Trust?

The rule of thumb is that all expenses attached to the performance of a business operation performed to earn income are deductible whether such expenses are necessary for its performance or attached to it by chance or incurred for the more efficient performance of such operation.

Can I deduct charitable donations for tax?

The donation must be made to a qualifying Public Benefit Organisation (PBO), which includes religious institutions, daycare centres, disaster relief organisations, health clinics, etc. Such organisations are registered with SARS and entitled to issue the donor with a certificate in terms of section 18(a) of the Income Tax Act.

This certificate is basically a receipt that reflects the organisation’s PBO registration number, donation date, names and addresses of both parties and the donation amount. The total amount claimed for deduction must not exceed 10% of the trust’s taxable income and must be made with no strings attached.

How can trust structuring benefit me and my family?

Trust structuring can provide numerous benefits, including asset protection, estate planning, wealth preservation, and tax optimization. By creating trusts tailored to your specific needs and goals, you can safeguard your assets, minimize taxes, protect your legacy, and ensure your beneficiaries are taken care of according to your wishes.

What types of assets can be included in a trust?

A wide range of assets can be included in a trust, such as cash, real estate, investments, businesses, and more. Trusts can be customized to hold various types of assets, depending on your specific requirements and objectives.

How long does the trust structuring process take?

The timeline for trust structuring depends on various factors, including the complexity of the trust, legal and regulatory requirements, and the level of customization needed. The process typically involves thorough planning, documentation, and legal review, and can take several weeks to months to complete. However, the exact timeframe can vary and will be discussed with you during the initial consultation.

Do I need an attorney to assist with trust structuring?

While it is not required to have an attorney for trust structuring, it is highly recommended to work with experienced professionals who have expertise in trust law and regulations. Trust structuring involves complex legal and financial considerations, and having a qualified attorney can help ensure that your trusts are properly established and compliant with relevant laws and regulations.