Donations To Trusts Left Out Of SA Exchange Control Amnesty

by Robert Lee Tax-News.com, London

16 June 2003

It emerged from reports last week that the South African Revenue Service's Exchange Control Amnesty and Amendment of Taxation Laws act does not cover donations to overseas trusts, and that any money transferred to a trust in this manner may be liable for donations tax of up to 20%.

The amnesty, which commenced this month and will run until 30 November 2003 allows individuals who have illegally placed funds offshore in recent years to declare their investments without fear of penalties or prosecution. The provision announced in Finance Minister Trevor Manuel's 2003 budget will levy a 5% tax on any repatriated funds. If investors choose to keep their money offshore, a 10% tax will be imposed.

However, according to David Clegg, a tax partner at Ernst & Young, the first draft of the bill covered donations to offshore trusts. The fact that it did not appear in the final draft which eventually passed in to law must have been "an unintentional glitch on the part of treasury," Clegg suggested to the Business Day news service.

Despite this, it is very unlikely that a substantial amount of money was placed offshore in such a manner, according to Martin Grote, chief director of tax policy at the National Treasury. The majority of funds would have been directly transferred into offshore trusts and will therefore fall under the remit of the current amnesty, the National Treasury official explained. Consequently, the government will not be considering an amendment to the legislation to accommodate donations to funds, according to Grote.

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