Bradley Woolridge

By Bradley Woolridge, Director at Burns Acutt 

Trusts are easily the most misunderstood and underutilised means of wealth management vehicles of those utilised in the small to medium enterprise (SME) market, and this includes private practice medical professionals.

Recent changes in law have effected both the use of a trust for tax purposes, and loaning money interest-free to a trust. Loaning from a trust is now deemed to be interest bearing, failing which a deemed donation and is subject to a deemed donations tax which is payable each year that the interest free loan is outstanding. This applies to both existing and newly-formed trusts.

Chartered accountants in South Africa are required to keep up with all relevant changes in legislation, as they significantly impact the services offered by their accounting firms. We pride ourselves in keeping up to date in this space by working in partnership with some of the leading tax consultants, attending training on a regular basis and applying our own minds to the legislation as we learn more and apply it practically in our day to day affairs.

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These changes in legislation have prompted many small business owners to question whether trusts are still relevant. What many business and private practice owners seem unaware of, is that there are several additional benefits to having trusts, besides those recently negated by the changing tax laws. Many accountants and auditors, like myself, will argue that trusts still hold benefits which are worthwhile in SME accounting services.

These benefits, however, apply more strongly when a trust is considered a vehicle to grow wealth in, rather than one to store or transfer new wealth into. They are also more useful now, in my opinion, for younger professionals who wish to see their fruits grow throughout their career in a relevant vehicle.

In this way, trusts can provide benefits for high net worth families and individuals in the following three areas:
• Risk protection
• Estate planning
• Tax efficiency

To determine whether a trust is applicable to your needs, see how many of the following questions you answer yes to:

1. Is it possible I may be litigated against, either through my private practice or in my personal capacity?
2. Do I want my estate to mitigate estate duty (currently set at 20% after the abatement) for the benefit of my children?
3. Can I be more tax efficient in terms of how my overall investment income is distributed to my family?

The relevance of a trust for your practice increases with each “yes” answer.


For a practical example, let’s consider you do not currently have a trust. Both you and your wife can comfortably donate R100 000 a year into the trust, which can be left to grow with no loan account implications.

These funds and any growth incurred remain separate from your personal wealth, which means creditors cannot claim for them, should a credit dispute arise during the course of your medical career. The funds will also never form part of your estate, so upon death, no estate duties will be incurred on the assets donated to the trust, nor on the subsequent growth.

However donations beyond this or trusts with loan accounts who intend to distribute income to their children, can give rise to section seven attribution rules for the donor, especially where the children are minor children and so being aware and planning for that contingency is important and reiterates the need for sound tax advice and planning.

In terms of tax efficiency, costs associated with the running of the trust can be claimed the same as a company, in terms of s11(a), as a deduction against the income, and whatever income remains can be distributed to the beneficiaries. This will be taxed according to the individual marginal rates of the beneficiaries, which is often significantly less than the higher marginal rate belonging to investments made in your own name or the rate in a company or trust.

Bear in mind that the trust must actually earn income to claim costs and those costs must always be in the production of that income in order to be deductible.

If the above doesn’t seem relevant to you, then I would suggest speaking to an accounting financial services provider about financial solutions that don’t involve trusts.

If it does strike a chord, however, then I do believe a trust is a vehicle worth pursuing.

A final note, although trusts are generally more applicable to the growth of an estate than as a restructure option, they can still be considered for such on a case by case basis, so don’t be entirely discouraged. You should discuss your needs with your local chartered accountants who should be up-to-date with the latest changes in the taxation of trusts. This way you can be sure that you are receiving the best accounting and tax services possible and that your wealth is being optimally structured and managed at all times.


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