How can investment structures assist local individuals, trusts?

With many South Africans holding assets within a trust or in their own capacity, it is important to understand the benefits certain investment structures can offer in reducing income tax and capital gains tax for both trusts and individuals.

- Justin Joseph

More importantly, how it can help in moving assets into a trust without creating a loan account.

Trusts are widely used to protect assets for families and create generational wealth.

However, there are two important considerations when using a trust:

A trust has a fixed income tax rate of 45%. For capital gains tax (CGT) purposes, the trust has an 80% inclusion rate, which results in an effective CGT rate of 36%.

When starting a trust, you can either donate funds to the trust (though this is not common due to tax implications) or loan funds to the trust (the preferred method for most individuals).

This creates a loan account between the trust and the individual, which historically wasn't a problem as it was possible for the loan to be interest free.

Tax benefits:

The investment structure has a fixed income tax rate of 30%, and an effective CGT rate of 12% applies within the investment.