Abstract
LL.M. (Tax Law)
This dissertation examines the tax efficiency of trusts in the estate planning activities of taxpayers in light of the legislation introduced by National Treasury to combat estate planning strategies which have the effect of decreasing or eliminating the tax liability of taxpayers.
The focus areas of the research was the estate planning strategies employed by taxpayers to avoid estate duty, Capital Gains Tax (“CGT”) and donations tax by utilising trusts in their estate planning, as well as the measures implemented by the taxing authorities to combat these strategies by, inter alia, addressing transactions which have the effect of shifting income and capital gains properly taxable in the hands of a taxpayer to another person, as well as addressing transactions whereby taxpayers dispose of their assets to or in favour of another person for purposes of avoiding the estate duty which should rightly arise upon the death of such taxpayer.
Particularly, this dissertation sets out an analysis of the anti-avoidance provisions introduced by the taxing authorities into applicable legislation to address aggressive estate planning strategies which reduce the taxpayer’s tax liability, and the effectiveness of such anti-avoidance legislation in addressing such practices by taxpayers and preventing the erosion of the tax base.
The conclusion of the analysis is that while the anti-avoidance measures introduced may have previously made some impact on stemming estate planning mechanisms which resulted in abuses of the tax system, the effectiveness of such measures is largely dependent on factors such as the tax rates applicable to trusts and those applicable to individual taxpayers. In fact, the anti-avoidance measures may in fact contribute to the tax efficiency of trusts in estate planning, contrary to the intentions of the taxing authorities.
In addition, this dissertation considers the possible introduction of wealth taxes into the South African tax system and the potential impact of any such wealth taxes on the utilisation of trusts by taxpayers in their estate planning activities. The conclusion reached is that the introduction of wealth taxes, depending on the manner in which such taxes are designed and implemented, will not have a notable impact on the utilisation of trusts in estate planning nor render trusts as an unattractive vehicle for carrying out estate planning activities.