| 
The issue before the Court in this matter was whether, in the particular circumstances of the matter, the disposal of assets to a trust amounted to a donation as contemplated in the Income Tax Act.
If the disposal constituted a donation, Donations Tax would be payable.
MSK acted in this matter for a deceased estate which faced the possibility of substantial Donations Tax becoming due.
The important facts may be summarised as follows:
the marriage of the deceased was dissolved by divorce during October 1996;
the terms of the divorce were regulated in a settlement agreement which obliged the deceased to pay maintenance to his spouse for her personally and for the minor child born of the marriage;
the settlement agreement provided for the establishment of a trust by the deceased and the transfer of assets to that trust in discharge of his maintenance obligations;
the settlement agreement specifically provided for the settlement of assets upon the trust "with the specific intention of providing income";
the deceased procured the establishment of the trust and the transfer of assets to it in accordance with the settlement agreement
the primary obligation of the trustees was to ensure that the provisions of the settlement agreement, which had been made an Order of Court, were implemented.
The Special Income Tax Court held, in favour of the estate, that the disposal was not a donation.
A full bench of the Cape High Court reversed that finding, but granted the estate leave to appeal to the Supreme Appeal Court of Appeal and the estate duly appealed.
The Supreme Court of Appeal:
accepted that the transfer of the assets to the trust was intended as a disposal for purposes of performing a legal duty, being the payment of maintenance in terms of the Court Order; and
held that the "donation" should not be seen as a donation contemplated in the Income Tax Act and that Donations Tax was not payable.
The appeal was accordingly granted, together with costs.
This Judgement, which has been reported and discussed widely in local and national newspapers and in professional journals, offers guidance on whether or not a disposal will constitute a donation for Donations Tax purposes.
The overall view of academics and professional advisers seems to be that each matter should be examined on its own merits to establish whether or not a payment to a trust would be interpreted as a donation.
MSK was instructed in this matter by Peter Gees of Pentagon Financial Services, financial adviser to the estate. Ockie Kruger of MSK conducted the litigation and instructed Advocate Alasdair Sholto-Douglas.
The Judgement can be found in the South African Law Reports. The reference is ESTATE RF WELCH vs COMMISSIONER FOR SOUTH AFRICAN REVENUE SERVICE 2003 (1) SA 257 (C).
Please note that this page is intended to reflect the nature of the matters we deal with and not as advice or commentary on the law. |
