Trusts

Question 1

What is a trust?

Answer 1

Section 1 of ITA
- “trust” means any arrangement whereby a person (the trustee) holds property for the benefit of one or more other persons (the beneficiaries), whether the trustee has any beneficial interest in the property or not

Question 2

What is a contingent right to a trust? in comparison to a vested right/

Answer 2

Section 1 of ITA
- A contingent beneficiary is a person who has a right to receive the benefits of a trust, but only if a certain event occurs. For example, a person may be named as a contingent beneficiary of a testamentary trust, but only if they are alive at the time of the testator’s death; the right has to be dependent on something other than the passing of time
- a vested right is when the asset is aready yours, it just hasn’t been transferred into your possession yet

Question 3

When happens when an asset that is within a trust, vests in one of the beneficiaries?

Answer 3

Para 11 or 12
- says that this is a disposal event

Para 80(1)
- says that any capital gain or loss that is experienced on that disposal event needs to be borne by the beneficiary if they are a resident
- it is then deduced that If they are a non resident, then the gain or loss is attributable to the taxable income of the trust

Para 13(1)(a)(iiA)
- the disposal and gain is dealt with not when the asset transfers but when it vests

Question 4

What happens when assets are bequeathed to a trust?

Answer 4

Section idk
-the person who died had to pay estate duty

Section idk
- this is considered a disposal event for CGT, for the deceased estate

Question 5

How do assets to which a vested right is attached, get taxed in comparison to a contingent right when entering a trust?

Answer 5

Section 25B of the ITA
- an asset with a vested right will be taxed in the hands of the beneficiary in which the right vests immediately
- an asset with a contingent right will only be taxed if it vests during the year, in the hands of the beneficiary in which vests OR the trust will get taxed at the end of the year because it is still in possession of the asset

Question 6

What happens when someone donates assets into the trust with contingent rights attached?

Answer 6

Section 7(5) of the ITA
- overruling other sections
- the income that asset earns will be taxed in the hands of the doner until it vests in a beneficiary or the doner dies
- when the donor dies, the income being earned from the donated asset will then be included in the taxable income of the trust

Question 7

What is the income tax rate for a trust?

Trusts

Answer 7

Section idk of the ITA
45%

Section idk of the ITA
special trusts are taxed a scale like natural persons

Trusts