CAP REVISED QUIZ: TRUST 1- 15 QUESTIONS 60 MINUTES [VERY ADVANCED -DO NOT STRESS]

Gavin, who had founded a discretionary trust 7 years ago for the benefit of his wife and 2 children (still minors), sold an asset, with a market value of R3 500 000, to the trust. The trust managed to obtain a loan from the bank to purchase this asset from Gavin. The trust pays 7.6% interest on the outstanding loan amount to the bank. SARS Official rate is 7%

In this year of assessment, the trust received income of R 78 000 and distributed R50 000 to Gavin’s children in equal shares. The remaining R28 000 the trust reinvested into one of the investments held in the Trust.

Gavin is on a 45% marginal tax bracket, his wife is on a 36% marginal tax bracket and the minor children have never before received any income.

The transaction will result in the following taxes that have to be paid. Select the correct statement:

Each child’s taxable income is R25 000 and Gavin’s taxable income is R28 000 as well as a donation tax on the amount of R500 000

Correct Incorrect Correct answer

Gavin’s taxable income is R78 000

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Each child’s taxable income is R25 000 , the Trust’s taxable income is R28 000 and Gavin will have a donation tax on the amount of R500 000.

Correct Incorrect Correct answer

There is no taxable income as Gavin has made a donation to the Trust and will have to pay donation tax.

Correct Incorrect Correct answer

There is no correct answer

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Tammy set up a discretionary family trust 5 years ago. Tammy’s aunt donated R1 000 000 to the trust. The trust deed provides for trustees to decide in whom they want to vest income and or assets of the trust. A clause does however give rights to the founder, Tammy, to revoke the right of any beneficiary to the income or assets of the trust when so awarded to them. In this current year of assessment, the trustees decide to distribute income that the trust received as a result of the donation made by Tammy’s aunt. The trust received R150 000. All beneficiaries of the Trust are Tammy’s children. Distribution is made as follows: To Gemma who is 15 years, an amount of R40 000 To John who is 10 years, an amount of R45 000 To Samantha who is 18 years, an amount of R50 000 Tammy exercises her right and revokes the decision to grant John R45 000 and confers this right to Gemma and Samantha who now receive an additional R22 500 each. The taxable income of the various role players are: Select the correct statement.

Gemma: R40 000, Samantha: R50 000, Trust: R60 000

Correct Incorrect Correct answer

Gemma: R62 500, Samantha R72 500, Trust: R15 000

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Gemma: R40 000, Samantha: R50 000, Tammy: R60 000

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Gemma: R62 500, Samantha: R62 500, Tammy: R15 000

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Jeremy bequeathed all his assets to trust for the benefit of his wife Jen and his 3 children who are all minors. Jeremy died 3 months ago. The trust is discretionary in nature. In the current year of assessment, the Trust generated the following income:

Rental R200 000

Interest R300 000

The trust chose to distribute R100 000 rental and R100 000 interest income to Jen and the children, in equal proportions.

(25 000 each in rental and R25 000 each interest)

The taxable income for each is as follows:

Select the correct statements:

A. Jeremy R200 000 rental and R300 000 interest less R23 800 exemption

B. Jen R25 000 rental and R1 200 net interest

C. Each child R25 000 rental and R1 200 net interest

D. The trust R100 000 rental and R200 000 interest

E. Jeremy R100 000 rental and R100 00 interest

A only

Correct Incorrect Correct answer

E only

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B, C and D

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B,C,D and E

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C,D and E

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The assets of Zeeman trust consist of townhouses to the value of R5 million. The shares were sold to the trust by way of an interest-free loan that Mr. Zeeman made to the trust on 1 March 2023. Mr Zeeman’s 3 minor children are the beneficiaries of this discretionary trust. A market-related interest rate on a similar loan is 10%. The trust received no income before the current year of assessment. The trust sells the property and realises a Capital Gain of R2 000 000. They decide not to distribute the gain to any beneficiary. SARS official rate is 5.5% and Mr Zeeman marginal tax rate is 45%. The full loan remains outstanding.

The capital gain tax that is payable and the person accountable is:

Mr Zeeman will pay capital gain tax of R 352 800

Correct Incorrect Correct answer

There is not enough information to come to a solution

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Mr Zeeman will pay capital gain tax of R82 800 and the trust will pay capital gain of R540 000

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The trust will pay a total amount of R720 000 capital gain tax

Correct Incorrect Correct answer

Match the statements below:

Sort elements

All beneficiaries must be disabled and need not be related to the founder
A testamentary provision in which a minor benefits but all beneficiaries have to be relatives to the founder yet they need not all be minors

Special Trust A

Correct Incorrect Correct answer

Special Trust B

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Complete the statement below:

The joint-action rule implies that, [if not| if] otherwise provided in the trust deed, co-trustees of a trust must [not act jointly| act jointly] if they act on behalf of the trust and wish to bind the trust.

If not

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If

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Not act jointly

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Act jointly

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In relation to beneficiary rights, match the statements below:

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rights against the trustees to hold them to certain actions
ownership rights in trust assets
Fiduciary and common law rights
rights to income
Rights to capital
All beneficiaries which include contingent beneficiaries
Contingent beneficiaries
Personal right

Personal rights

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Real rights

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Rights against trustees

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Vested rights

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Contingent rights

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Entitles to full, true and proper accounting records

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No vested rights in trust assets

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Legal right

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Match the statements below:

The definition of a ‘trust’ in tax law means:

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trust fund means any fund consisting of cash or other assets the admin & control of which is entrusted to any person acting in a fiduciary capacity whether under a trust deed or by agreement or by a deceased person under a will made by that person
trust means any trust fund consisting of cash or other assets which are admin & controlled by a person acting in a fiduciary capacity whether such person is appointed under a deed of trust or by agreement or under the will of a deceased person
consisting of cash or other assets which are administered and controlled by a person acting in a fiduciary capacity, where such person is appointed under a deed of trust or by agreement or under the will of a deceased person
No such definition exists

Value Added Tax

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Transfer Duty Act

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Income Tax Act

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Estate Duty Act

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In relation to a Inter Vivos Trust – Match the statements below:

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May also be referred to as a donor if applicable as well as a settlor
to provide a form of third party overview
The trust is set up for them
De iure control of a trust is in their hands

The Founder

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The protector

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The beneficiaries

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The trustees

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our grandmother Nannie instructed in her Will for a trust to be formed on her death. The beneficiaries of the trust were a class of beneficiaries which included you.

The trustees of the trust made a call to you in May of this year advising you that they had awarded you an amount of R100 000. This income was as result of an investment made which paid interest and dividend on the last year of assessment. The trustees chose to distribute this income in this year of assessment. The R100 000 is made up of 60% interest and 40% dividend,

In your final tax assessment submission you have to disclose the amount received. Indicate whether the conduit principle will or will not apply to these amounts.

Will not apply

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Will apply

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Gary is the founder of a discretionary trust set up for the purpose of caring for his family. The beneficiaries of the trust are Gary, his wife Karen, their two minor children and Gary’s cousin who is disabled. Gary’s brother Paul, donates R50 000 to the trust on an annual basis. The trustees have, in this current year of assessment, not made any distributions to the trust beneficiaries.

This will be considered a [normal trust| special trust A| special tryst B]] for the purpose of the Income Tax Act and [will not| will] be taxed according to a natural person tax tables.

Complete this statement by selecting the correct options below.

Special trust A

Correct Incorrect Correct answer

Special Trust B

Correct Incorrect Correct answer

Normal Trust

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Will

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Will not

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Tom bequeathed all the assets in his estate to a testamentary trust for the benefit of his 4 adult children. Tom’s spouse did not feature in the Will nor as a beneficiary of the testamentary trust. The children repudiated their inheritance and as a result the testamentary trust failed. Select the correct option.

Tom’s deceased estate will fall intestate and will be distributed equally between the surviving spouse and the 4 children

Correct Incorrect Correct answer

Tom’s deceased estate will be equally divided between his 4 children

Correct Incorrect Correct answer

Tom’s deceased estate will go the state as the children repudiated and Tom did not want his spouse to inherit

Correct Incorrect Correct answer

Tom’s deceased estate will fall intestate and will be distributed amongst all descendants where spouse will be awarded the greater of R250 000 or a child’s share. The remaining estate will be divided equally among the 4 children

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None of the statements are correct

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Peter donated a townhouse complex to a trust that produces rental income for the trust. The townhouse did not form part of the joint community. His two children (Jackie and Mikey) are the beneficiaries of the trust. Jackie is 18 and Mikey is 22-years old and working as a candidate attorney. During the current year of assessment the trust earned R300 000 net rental income. The trustees exercised their discretion and distributed R100 000 to each beneficiary. No beneficiary has a vested right to the retained amount.

Determine who will be liable for income tax on the rentals earned by the trust.

Select the correct statement

Peter, Jackie, Mikey and the Trust

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Peter and Mikey

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Peter and the Trust

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Peter, Jackie and Mikey

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Mr Brown made an interest free loan of R1 000 000 to the Brown Trust On 1 March 2019. The market related interest rate on this loan would have been 10%. The Brown Trust is a discretionary South African inter vivos trust. The beneficiaries of this trust are Mr Brown’s wife and children, Steven Brown (aged 17) and David Brown (aged 25). David Brown has immigrated to Australia and is an Australian resident. The trust invested the money in South African shares. On May 2024, the trust sold shares and made a capital gain of R600 000. The capital gain was distributed to the beneficiaries in equal shares in January 2024.

Who will be liable for the payment of the capital gains tax in the 2024 year of assessment and, which amounts will attributed if any?

Select the correct statement

Mr Brown the donor, will have R600 000 attributed to him as a result of the loan

Correct Incorrect Correct answer

The donor will have to include a gain of R1 000 000 x 10% = R100 000 x 20% = R20 000

Correct Incorrect Correct answer

There is not enough information to answer the question

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Attributed to donor is a total of R500 000 gain and each beneficiary has gain of R33 333

Correct Incorrect Correct answer

Are trusts automatically a provisional tax payer? Select the most accurate statement

They are not automatically provisional payers if they do not receive income

Correct Incorrect Correct answer

Only if the trustees voluntarily register the trust as a provisional payor

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Trusts are all automatically provisional taxpayers

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There is no correct statement

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CAP REVISED QUIZ: TRUST 1- 15 QUESTIONS 60 MINUTES [VERY ADVANCED -DO NOT STRESS]

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