1. CHANGE OF TRUSTEES

1. Some Settlors are also considering appointing South African rather than Offshore Trustees so that they can obtain appropriate expertise at local costs with all the obvious communication advantages and access to financial information. The only legal consequence would be that the residence of the Trust would change from being offshore to South African for tax purposes but for no other purposes, i.e. the formation and existence of the Trust would be subject to the same offshore laws and the trust assets obviously remain offshore and exactly the same.
    
2. Settlors have also experienced difficulty and delays in obtaining the necessary information from Offshore Trustees for completing their South African tax returns. As South Africa changed its system of taxation to residence based as from January 2001 all income earned by residents on a worldwide basis is subject to taxation in South Africa and likewise for CGT purposes any disposal of foreign assets is hit by CGT. The complexity of information required, for instance, with foreign currency gains and losses is such that unless exact records are kept of dates of purchase and sale the Receiver will not be satisfied. Having local trustees with the requisite skills and facilities to comply with the complex tax reporting needs is a considerable advantage.

1. The actual tax consequences of changing residence would be minimal in that any monies received by a beneficiary in South Africa from an Offshore Trust would have been taxable anyway under one Section or another of the Income Tax Act, i.e. as deemed income under Section 7(8) or alternatively on receipt in terms of Section 25(B)(2A). If the income is distributed to a non-resident beneficiary then (as with an Offshore Trust) it will not be subject to South African tax being non-resident income sourced.
    
2. From a CGT point of view to the extent the assets in question required and obtained Amnesty they will be deemed to be owned by the Amnesty Applicant until distributed or disposed of by the Trust at which time CGT will be payable to the extent a gain has occurred since 1st March 2002. Until that time therefore any asset dealings will constitute a gain or loss in the hands of the Settlor.
    
3. When assets are distributed by the Trust it may well still constitute a donation by the Settlor to such further entity and therefore income earned by that further entity and/or capital gains made by that further entity will still be taxed in the hands of the same Settlor for ever and a day. It could be argued, however, that because Section 4 is a deeming provision, it cannot be read so as to deem the distribution by the Trust to a further entity to be a donation as such by the Settlor. There is certainly an argument that the Receiver may find difficult to deal with in this process.
    
4. However, what is indisputable is that if assets are distributed by the original Amnesty Trust to a second Trust and immediately thereafter into a third Trust, i.e. sales of assets in the hands of the third Trust would not be subject to CGT in the hands of the Settlor because the disposal by the second Trust into the third Trust would not be a donation by the Settlor but a distribution by an independent Trust. Thus, if you want to avoid CGT as an Amnesty Applicant you will have to arrange for a double distribution of assets to a third and final Trust!
    
5. No Donations Tax is payable by the Settlor or the Trust in distributing such assets because they are deemed to have been disposed of at the same market value as at the date of disposal.