Who qualifies for a special trust and how is it taxed?

Unlike “conventional trusts” that are taxed at a flat tax rate, a special trust is taxed on the same sliding scale applicable to natural persons.

The Income Tax Act provides for two types of special trusts: a so-called type-A and type-B trust. In essence, a type-A trust is created for a person (or persons) having a disability, while a type-B trust is created on a testator’s death and can exist only while it has a minor as a beneficiary. The distinction between a type-A trust and a type-B trust is vital because a type-A trust qualifies for specific relief from capital gains tax but the same is not granted to a type-B trust. This article focuses on the characterises of a trust in order for it to qualify as a type-A trust.

Characteristics of a type-A trust

A type-A trust can either be:

Type A special trusts must have the following characteristics to qualify for the favourable tax dispensation: It is important that where persons of disability are reliant on trust income to support their livelihood, these requirements be carefully considered and that the trust is correctly registered as a type-A trust with the South African Revenue Service. Should you require assistance in this regard, feel free to contact your tax adviser for more detail.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)