The residency of a trust is determined, among others, by the residency of the trustees, the place where the trust was established/formed, and from where the day-to-day management of the trust’s operations are carried on. This will depend on any double-taxation agreements and intricate sections of the tax legislation that have to be read together.
In terms of the “conduit principle”, the source of income earned by a trust flows through to the beneficiary in the same nature in which it was earned by the trust.
Section 25B (2A) of the Income Tax Act provides that the income in a trust retains its nature and will, in most cases, be taxed in the hands of a donor or beneficiary.
A resident who acquires a vested right to any capital of a non-resident trust during a year of assessment is required to include that amount in his or her income for that year. The inclusion applies in respect of capital that consists of, or is derived from, receipts or accruals that would have constituted income of the trust if it had been a resident trust during any year of assessment in which the resident had a contingent right to that amount, and the amounts have not already been subject to tax in South Africa.