Application of Paragraph 51A of the Eighth Schedule
Please could some clarity be provided regarding the following situation:
A property is owned by a Will Trust, the Will Trust wants to transfer the property to a spouse of the Beneficiary (this beneficiary is deceased).
Paragraph 51A of the Eighth Schedule of the Income Tax Act includes Trusts in the moratorium. Does the moratorium apply to Testamentary Trusts (Trusts created in a will)? As the wording of the necessary section does not specifically exclude a Testamentary Trust, have any of the readers found any provision that would exclude a testamentary Trust?
I don't believe there is any distinction, for the purposes of Para 51(A), between an inter vivos trust and a testamentary trust.
There is no difference: see definition of "trust" in Act.
I agree that a testamentary trust is included but do not forget that ALL the other tests must be complied with too:
1.property used mainly for residential purposes.
2. by one or more natural persons who are connected persons.
3. since 11 February 2009.
4. steps must be taken within 6 months of the date of disposal to terminate the trust.
This last one is going to catch people who are unable to take steps to terminate the trust (or liquidate a company) because the trust owns other property it cannot dispose of.
Can the property be transferred to someone other than a beneficiary of the Trust, for instance, the Trustee transferring onto his own name or someone who is neither Trustee nor beneficiary but is a family member?
Donald, test 1 is actually "domestic " purposes. I would be interested to know what the difference is. If a holiday home is let more than 50% of the time to 3rd parties, it is residential, but not domestic. I had a company where the shareholder resided in the dwelling owned by the company and also paid rent to cover expenses. My first view was not domestic, because of the rent. The accountant's view was that because it was their home, it was domestic. I bowed to his superior insight and because of my overdraft!
The residence must have been used for domestic purposes by a natural person who is a "connected person" to the trust- PAR51A(1)(b). Now see the definition of "connected person" in Act: they are beneficiaries and relatives of beneficiaries. "Relative' is defined as follows: "in relation to any person, means the spouse of such person or anybody related to him or his spouse within the third degree of consanguinity, or any spouse of anybody so related, and for the purpose of determining the relationship between any child referred to in the definition of 'child' in this section and any other person, such child shall be deemed to be related to its adoptive parent within the first degree of consanguinity;" Ito P51A(6)(b) , The residence must be acquired by one or more of the above persons.
Further question re Donald's "Test 4 - Steps must be .......". What is considered as "steps". I.e is the mere fact that the trustees resolved that other properties that are registered in the name of the trust are to be sold and indeed placed on the market sufficient to be considered as "steps taken" (so as to enable them to terminate the trust).
Par 51A does not specify the steps to be taken. A resolution to terminate would be a start, followed by transferring the residence, tax clearance, final financials, lodgement with Master of aforesaid together with resignation of Trustees, and Letters of Authority. It does not say steps must be taken to liquidate assets, the trust must be terminated.
Whist P 51A may not distinguish between inter vivos and testamentary trusts, there may be a difference if it is a bewind trust, or if vesting has taken place.