The introduction of the Special Trust by SARS has brought about more favorable tax treatment for certain trusts.
Unlike traditional trusts that are taxed at a flat rate, Special Trusts are taxed on the same sliding scale as natural persons.
SARS recognizes two types of Special Trusts for tax purposes:
Special Trust Type A: This trust is created solely for the benefit of a person or persons with a mental or physical disability, as defined in Section 6B(1) of the Income Tax Act. The disability makes it impossible for the beneficiary/beneficiaries to earn enough money to care for themselves or manage their finances. If there is more than one qualifying beneficiary, they must be related to each other. These trusts can be created either through a will or during the creator's lifetime, and sometimes as a result of a court order in favor of a specific natural person with a disability to assist in the management of their affairs.
This type of trust is taxed on normal person tax scales and will cease to be a Type A trust from the beginning of the year of assessment in which the last beneficiary dies.
Special Trust Type B: This trust is set up in accordance with a person's will and is specifically for the benefit of minors who are relatives of the deceased person, including those conceived but not yet born, and the youngest beneficiary is under eighteen years on the last day of the year of assessment.
This type of trust is also taxed on normal individual person tax scales, but it does not offer any benefits concerning Capital Gains Tax. This type of trust will cease to be a Type B trust from the beginning of the year of assessment in which the youngest beneficiary turns eighteen.