Binding Private Ruling 330 (“BPR330”) was issued on 3 October 2019 and relates to the tax implications arising from distributions of dividends and other amounts from an employee trust to beneficiaries on the termination of their employment.
The taxpayer (a resident trust) was established for the benefit of the black permanent employees of Company A. The object of the trust was to invest funds from time to time and to use the return on these investments for the economic, health, educational and emergency benefits of its beneficiaries.
The trust funds to be administered in this regard will include donations made to the trust, any assets the trustees may acquire (not limited to shares), any net revenue capitalised by the trustees in their discretion and any other interest, dividends or accruals in favour of the trust.
The trustees of the trust are entitled to, in their discretion, select one or more of all the employees to allocate or distribute all or part of the trust’s net revenue. These employees will only have a claim against the trust from the date of vesting of the benefit and are not entitled to deal in any way with the respective trust funds or interest in the trust before such date.
It is envisaged that the trustees will, from time to time, vest dividends in the employees that the trust receives from Company A. These dividends will be distributed immediately after it is received by the trust.
The trust deed furthermore provides for the allocation of beneficial units. Employees that hold these units may only dispose of them to the trust. Also, the trust must repurchase the units when the employee ceases to be an employee at a repurchase price determined by the trustees in their discretion.
The proposed transaction that was considered in terms of the BPR was the repurchase of a beneficial unit from a beneficial unitholder on the date the unitholder ceased to be an employee. The repurchase was funded by existing funds and not a specific dividend that was received.
In terms of the BPR, the unitholder received an amount as a beneficiary of the trust by reason of the termination of its employment and confirmed that this amount would be included in the employee’s gross income, in terms of paragraph (d) of the definition of “gross income”, and be subject to employees’ tax as provided for by the Fourth Schedule to the Income Tax Act.
Also, all amounts to be distributed to the beneficiaries will constitute remuneration as defined in the Fourth Schedule and will be subject to employees’ tax.
 No. 58 of 1962
 See section 10(1)(k)(i) and the definition of “remuneration” in paragraph 1 of the Fourth Schedule.
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