Tax implication: The use of trust assets by beneficiaries

1 Jun

Written By Mahomed Kamdar, Tax Specialist: Independent CIBA Consultant

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In practice, beneficiaries of trusts often enjoy the use of trust assets. For example, a beneficiary may occupy and use a residential property owned by the trust as his or her primary residence, even though legal ownership of the property remains vested in the trust.

Often, beneficiaries bear the costs associated with occupying the residential property, rather than the trust itself. Examples of such costs include rates and taxes, maintenance and repair expenses.

In other instances, all costs relating to the trust asset — in this case, the primary residence — are borne by the trust.

Regardless of the arrangement, the position must be accurately disclosed in the relevant tax return.

Trust returns

The SARS trust tax return has been significantly enhanced in relation to such transactions. Where the relevant fields are selected in the wizard regarding the use of trust assets by a beneficiary, a number of questions will be posed and specific details will be required.

Details of consolidated expenses incurred in respect of ‘Use of trust assets’:
- Add: expenses incurred in respect of right of use of trust assets by beneficiaries or other persons.
Under the section ‘Amounts not credited to the income statement’:
- The expenses incurred in respect of right of use of trust assets by beneficiaries must be inserted.
Under the section ‘Gross receipts’:
- Expenses incurred in respect of the use of trust assets by beneficiary must be inserted.
Under the section ‘Details of expenses incurred in respect of trust’s assets’:

SARS need to know how many persons enjoyed the right of use of assets retained in the trust.

Total expenses incurred by this Trust in respect of right of use of Trust assets during the year of assessment’ must be inserted.

Total expenses incurred by the said trust in respect of right of use of Trust assets by said person during the year of assessment. This means that, where the parents and their five children are beneficiaries of the trust, each of the seven individuals must be disclosed separately as persons having the right of use of the trust assets. The use attributable to each individual must be disclosed separately.

Alignment with IT3(t)

The challenge is that the information relating to an individual beneficiary disclosed in the trust tax return must also be accurately reflected in the corresponding IT3(t) issued in respect of that same beneficiary. Tax practitioners must therefore be highly alert to the subtle nuances relating to the disclosure of information concerning individual beneficiaries.

For the 2026 year of assessment, all trust tax returns must be submitted to SARS on or before 22 January 2027. However, the IT3(t) returns will need to be submitted before the trust tax returns become due. The IT3(t) submissions must be made by September 2026.

It is the timing of these submissions that requires taxpayers and tax practitioners to exercise extreme caution when dealing with trust tax returns and the submission of IT3(t) returns.

Conclusion

The disclosure of information in both the trust tax return and the IT3(t) ultimately results in the position that expenses incurred in relation to the use of trust assets by a beneficiary may not be deducted against other income earned by the trust.

Where the beneficiary has paid the expenses incurred in connection with the use of the trust asset, the amount added back to the gross receipts and accruals of the trust will be reduced by the amount paid by the beneficiary.

Conversely, where the beneficiary has not paid any of the expenses incurred in relation to the use of the trust asset, the full amount of those expenses will be added back to the gross receipts and accruals of the trust, thereby increasing the trust’s gross receipts and accruals.