QUESTION
If a discretionary Trust makes a capital gain of R1 million, of which R700,000 of the gain is taxable by applying the Time apportionment basis, & the Trustees resolve to distribute R700,000 of the capital gain, would R490,000 of the amount distributed be a taxable capital gain in the individuals hands (R700,000 x 700,000/1,000,000) & R210,000 (R500,000 x 300,000/1000,000) would be tax free, & R210,000 (R300,000 x 700,000/1000,000) would be the taxable capital gain in the Trust, & R90,000 (R300,000 x 300,000/1000,000) would be tax free in the Trust, or could the Trustees resolve that the full R700,000 distributed be a taxable capital gain in the hands of the beneficiary, & the full R300,000 retained in the Trust is tax free?

ANSWER
The normal tax consequences of the distribution must be dealt with in terms paragraph 80(2) of the Eighth Schedule (copied below). The answer that follows assumes that none of the attribution rules apply (paragraphs 68, 69, 71 and 72), that the beneficiaries are not a person, organisation, entity or club contemplated in paragraph 62 (a) to (e) and are residents of the RSA. It was also accepted that the beneficiaries do not include another trust. It is clear from paragraph 80(2) that it is possible to distribute (vest) a portion of the capital gain. It would then be possible for the trustees to decide to vest the capital gain (the R700,000 in your example) in the beneficiaries and to leave the R300,000 in the trust. The trust will then not have any capital gain in respect of the R300,000 retained in the trust. If the resolution by the trustees is not clearly worded, or the intention is in fact to distribute both the capital gain and the part of the profit which is not a capital gain, the allocation that you have applied would be correct. The only difference would then be that the R300,000 retained in the trust would consist of both a capital gain portion (subject to tax in the trust) and a portion which would not have tax consequences. For additional reading on the matter you are referred to paragraph 14.11.6.4 of SARS's capital gains guide (the newest version is available on their web site). Paragraph 80 (2) Subject to paragraphs 68, 69, 71 and 72, where a capital gain is determined in respect of the disposal of an asset by a trust in a year of assessment during which a trust beneficiary (other than a person, organisation, entity or club contemplated in paragraph 62 (a) to (e)) who is a resident has a vested interest or acquires a vested interest (including an interest caused by the exercise of a discretion) in that capital gain but not in the asset, the disposal of which gave rise to the capital gain, the whole or the portion of the capital gain so vested- (a) must be disregarded for the purpose of calculating the aggregate capital gain or aggregate capital loss of the trust; and (b) must be taken into account for the purpose of calculating the aggregate capital gain or aggregate capital loss of the beneficiary in whom the gain vests.