Trusts & the Corporate Roll-Over Rules: Where a Trust Fits

A trust is a “person” — so s 42 works

Section 42 opens with the widest word in the Act: it applies where “a person disposes of an asset … to a company which is a resident, in exchange for the issue of an equity share in that company”. A trust is a person for the Act, so the trust itself can be the transferor in an asset-for-share transaction — handing a property, a business or a block of shares to a resident company and taking new equity shares back, with the gain deferred if all of s 42’s requirements are met.

That matters for an established trust that already owns assets directly. Suppose the Nkosi Family Trust has held a rental property for years and now wants it in a company (for ring-fencing, or to build a property group). The trust does not need to sell and trigger CGT: it disposes of the property to Newco under s 42, ends the day holding a qualifying interest (10% or more of the equity and votes — typically 100%), and the gain rolls over exactly as it would for an individual. The mechanics, the qualifying-interest test and the 18-month rules are all in the Section 42 guide — they apply to a trust transferor unchanged.

Note — the same is true of s 44 amalgamations at shareholder level: the shareholder roll-over in s 44(6) applies to “any person that holds an equity share in an amalgamated company”, which includes a trust. Where the trust is simply a shareholder in companies that merge below it, that relief reaches it (each requirement still to be checked).

The companies-only tools: ss 45 and 47

Two of the six tools are structurally closed to trusts. The definitions say so in their opening lines:

Company to company. A trust cannot be the transferor or transferee in a s 45 intra-group transfer, and the same drafting pattern runs through s 47: a “liquidation distribution” happens between a resident liquidating company and a resident holding company in the same group. The trust’s assets cannot ride these rails; only the companies below the trust can.

The practical consequence is about sequencing. If the family wants group-style flexibility — assets moving between entities at tax cost — the assets must first get into companies (s 42), and the companies must form a proper group under a holding company. Once that architecture exists, ss 45 and 47 operate among the companies (each transaction still tested on its own requirements), with the trust sitting above the group as shareholder.

Trusts in the ownership chain: the group problem

Here is the subtlety that catches well-built structures. The s 45 and s 47 machinery needs a “group of companies” — in the s 1 definition, a controlling company holding at least 70% of the equity shares of each controlled company, directly or through other companies. A trust is not a company, so a trust in the middle of the chain breaks the group at that point.

Picture two structures. In the first, the Nkosi Family Trust owns 100% of Nkosi Holdings, which owns 100% of Trading and 100% of Properties. Holdings, Trading and Properties form a group (Holdings is the controlling company); s 45 transfers between them can work; the trust above does no damage because the group is tested from Holdings down. In the second structure, the trust owns Trading and Properties directly, side by side, with no holding company. Now there is no controlling company anywhere — just a trust holding two companies — and there is no group. Trading cannot move the warehouse to Properties under s 45. The fix is architectural: interpose a holding company (itself achievable with s 42 share-for-share roll-ins), and the group exists from that day forward.

Note — the corporate rules also narrow the group definition further in s 41(1) (excluding, among others, non-profit companies, tax-exempt entities and companies effectively managed offshore) — see the s 45 guide for the full proviso. And who counts as “connected” to whom in a trust structure — trustees, beneficiaries, their relatives and companies — is its own map: see The Players & “Connected Persons”.

Unbundling and the trust shareholder: s 46’s gateways

Section 46 relief runs through gateways, and for a trust shareholder the gateway is everything. The definition admits a distribution only where (aa) the unbundled company’s shares are listed or will list within 12 months, (bb) the recipient shareholder is a company in the same statutory group as the unbundling company, or (cc) the distribution is made under a Competition Act order.

A trust can benefit through the listed gateway: when a listed group unbundles a subsidiary, a trust shareholder receives its pro-rata shares like any other holder, and an ordinary resident family trust is not a “disqualified person” under s 46(7) (the only trusts on that list are s 37A rehabilitation trusts — the list otherwise targets non-residents, government, PBOs, clubs and exempt funds):

But not being a disqualified person is only one test — it cannot cure a failed gateway. On the ordinary unlisted route, the recipient must be a company in the same group of companies, and a trust or an individual can never satisfy that requirement. So an unlisted family holding company cannot hand its subsidiary’s shares up to the trust under s 46, no matter how much of the subsidiary it owns: the portion distributed to the trust falls outside the section and is taxed as an ordinary distribution (SARS’s draft ruling on unlisted unbundlings, though non-binding, reads the provision the same way — the transaction splits between qualifying and non-qualifying shareholders). The gateway analysis, thresholds and the corrected worked example are in the s 46 guide.

Dividend stripping: a companies-only rule with a trust lesson

Paragraph 43A — the rule that converts extraordinary pre-sale dividends into taxable proceeds — begins “where a company holds shares in another company”. A trust selling shares directly is outside it. Before anyone celebrates: the structures this hub deals with hold their shares through companies precisely for group flexibility, and every company in the chain is squarely inside para 43A, with the dividend history following shares through s 42 and s 45 roll-overs to connected acquirers. Falling outside para 43A does not make an extraction safe by default — the GAAR applies on its own statutory tests to any person, and Company AF shows it examining a web of family investment companies step by step. The working assumption in any structure with a corporate layer: the 18-month dividend test applies somewhere in the chain. Details in Dividend Stripping & the 18-Month Web.

After the roll-over: s 7C follows the funding

The roll-over sections move assets; they do not fund anything. The moment the structure is funded with soft credit — the founder lends to the trust, or leaves a purchase price outstanding on loan account — section 7C starts its annual work. Two design features make it inescapable in this context.

First, its reach. Section 7C covers cheap loans not only to the trust but also to a company in which the trust (with connected beneficiaries) holds at least 20%:

So lending cheaply to Newco under the trust is treated the same as lending to the trust itself — the company layer is no shield. Even preference-share subscriptions in such a company are swept in, with the subscription price deemed a loan and the dividends deemed interest (s 7C(1B)).

Second, the annual charge — and note precisely what it does and does not do:

The words “for purposes of Part V of Chapter II” are the boundary: the interest shortfall — measured against the official rate (8% with effect from 1 June 2026, being repo plus one; the rate moves with the repo rate, so check SARS’s official interest-rate table at the date you rely on it) — is deemed a donation for donations-tax purposes only. For a natural-person funder it first absorbs the R100 000 annual donations-tax exemption and attracts donations tax beyond that at 20% (rising to 25% to the extent the funder’s cumulative taxable donations since 1 March 2018 exceed R30 million). Waiving the loan later gives no relief the other way: s 7C(2) denies any deduction or capital loss on a disposal, reduction or waiver of the claim. The workings, the exclusions (including the primary-residence carve-out) and the planning options live in the dedicated guides: Section 7C Interest-Free Loans and Funding: Donations vs Loans.

The s 57 trap: company generosity is someone’s donation

Restructures put valuable companies under trusts — and then the temptation appears to let the company do the giving: Newco donates an asset to the trust, or sells it cheap, “because companies don’t pay donations tax like people do”. Section 57 was written for exactly this:

Read with s 58 (a disposal for inadequate consideration is deemed a donation to the extent of the shortfall), the loop is closed: value leaving a company for less than it is worth, at someone’s instance, is deemed that person’s donation — whoever, on the facts, procured the disposal (often, but not automatically, the founder) — taxed at the donations-tax rates above. Soft transfers between the companies and the trust after a restructure need the same valuation discipline as the restructure itself — and remember the company-side rules (s 24BA and value shifting) are watching the same transaction from the other end.

Attribution and the Thistle rule — separate enquiries

Section 7C and the attribution rules do different jobs, and it is a mistake to run them together. Section 7C treats the annual interest shortfall on a qualifying cheap loan as a donation for donations-tax purposes. It does not, by itself, attribute the trust’s or company’s income or gains to the lender. Whether the attribution rules apply — s 7 for income, paras 68–72 of the Eighth Schedule for capital gains — is a separate enquiry into the original donation, settlement or other disposition: what was given or foregone, by whom, and which receipts are attributable to that gratuitous element. A structure funded on interest-free credit can produce attribution back to the funder (the foregone interest is a continuing gratuitous disposition), but the extent is a legal and factual analysis of its own, not an automatic consequence of a s 7C deemed donation; where minors are beneficiaries the rules bite harder still (see Minor Children & Attribution).

And when the companies below eventually realise gains and the trust passes them on, the conduit principle has a stop sign. In Thistle Trust v CSARS the Constitutional Court considered para 80(2) of the Eighth Schedule (in the form then applicable) and held that the capital gain was attributed to the trust in which it vested; that trust could not pass the gain further down a tier of trusts under the paragraph, because it had not itself disposed of the underlying asset:

A single-trust family structure is unaffected; a structure with a vesting trust feeding a family trust feeding beneficiaries is exactly what Thistle re-priced. The full judgment and its planning consequences are covered in the Tiered Trusts & the Thistle Trust Case reading.

Worked example · the Nkosi family

Before signing

Roll-over relief depends on the exact parties, share rights, asset tax classification, values, residence, VAT status, debt assumed, consideration received and the order of steps. Obtain transaction-specific tax and legal advice before agreements or resolutions are signed — a later correction may not restore the relief.

Frequently asked questions