A comparison of tax legislation of trusts between South Africa and the United States of America on emigration

Abstract

An estimated 81 142 South Africans emigrated to the United States of America in 2010 (The World Bank, 2010). If only one of these emigrants were a creator, donor or beneficiary of a South African trust, then it is important to determine the tax implications both in South Africa and the United States of America for the creator, donor or beneficiary. In South Africa, the income and gains of the South African trust will be taxed in the hands of the donor, beneficiary or the trust itself. But, in the United States of America, the tax consequences could get rather complicated. The main purpose of this study was to make a theoretical comparison of the tax consequences of South African trusts both in South Africa and the United States of America and determine the effect of the emigration of the South African donor and/or beneficiaries to the United States of America. Based on the literature reviewed, the donor will be taxed in South Africa if a donation, settlement or other disposition was made, the beneficiary will be taxed if he/she has a vested right to income and no donation, settlement or other disposition was made and the South African trust will be taxed on any taxable income retained in the trust that is not taxable in the hands of the donor or beneficiary. In the United States of America, the South African trust will be liable for tax depending on its status as a business, investment or ordinary trust and furthermore on its status as a grantor or non-grantor trust.