Section 7C and its effect on Trusts:

From time to time, I will take the liberty to use this platform as an information sharing tool.

My commitment is share relevant information with aim of broadening insight and understanding of financial instruments & the impacts they may have.

The article below was published recently and is relevant in terms of the legislative changes in South Africa at the time.

Section 7C and its effect on Trusts: 23 July 2018  |  by Lighthouse

Effective 1 March 2017, section 7C put a stop to the well-used technique of shifting value to trusts using interest-free or low interest loan accounts, which pegged the value of the asset transferred, thus avoiding estate duty on future asset growth.

Section 7C deems interest to accumulate on the difference between the interest charged and the official rate (currently 7.5%) during the year of assessment, and treats this deemed amount as a donation back to the trust during each year of assessment. This effectively erodes the donations tax exemption available to natural persons (currently R100,000) and limits the extent to which a planner can reduce the loan he or she made to the trust by donating back to the trust each year an amount equal to the exempt amount.

It is important to note that s 7C only applies to resident natural persons if they are connected persons to the trust, or to a company that makes a loan to a trust if the loan is at the instance of such resident connected person.


Planner loans to his family trust the sum of R10,000,000 (TEN MILLON RAND) as part of an estate planning exercise to purchase a share portfolio. The loan is interest free and payable on demand. The resultant donations tax liability is illustrated below:

Step 1: Calculate the deemed interest: R10,000,000 x 7.5% (current official rate) = R750,000

Step 2: Deduct the annual donations tax allowance available to resident natural persons, currently R100,000: R750,000 – R100,000 = R650,000

Step 3: Calculate the donations tax payable: R650,000 x 20% (current rate of donations tax) = R130,000

The donations tax liability, payable at the end of the tax year and every subsequent year in which the interest rate on such loan remains 0% and the official rate remains 7.5%, will therefore be R130,000.

Section 7C does not apply in all circumstances

There are several instances where s 7C will not apply to interest free or low interest loans to trusts or companies (“affected entities”). These exemptions are summarised as follows:

1. Any loan to an affected entity which is an approved Public Benefit Organisation or Small Business Funding Entity;

2. Any loan to a trust by a person by reason of or in return for a vested interest held by that person in the receipts and accruals and assets of the trust;

3. Any loan to a trust which qualifies as a Special Trust;

4. Any loan to an affected entity where the loan, wholly or in part, was used to fund the acquisition of a primary residence as defined in the Act;

5. Any loan to an affected entity in terms of an arrangement that would have qualified as a Sharia compliant financing arrangement as defined; and

6. Any loan which is caught under the deemed dividend provisions or which qualifies as an affected transaction, i.e transfer pricing.

Further refinements to section 7C

As with most anti-avoidance measures, taxpayers try and restructure their affairs to avoid the effects of the new measures – in this respect, SARS identified two schemes employed and brought in new measures towards the end of 2017, effective 19 July 2017:

Loans made to companies

Prior to the amendment, s 7C only applied to loans made to trusts. This provision was overcome by restructuring the trust’s assets into a company whose shares were held by a trust and the planner extending a low interest or interest-free loan to the company. From the effective date, the provisions of s 7C now extend to loans made by individuals to companies in which the trust (or a beneficiary of the trust) holds at least 20% of the shares or 20% of the voting rights in the company.

Transfer of Loans

Section 7C only dealt with the initial lender, and it was argued that where the loan claim was transferred to another person, usually a beneficiary of the trust, then s 7C no longer applied. This argument has now been shut down by making it clear that the recipient of such claim will also be subject to the provisions of s 7C where they are a connected person in relation to the trust or company receiving the low interest or interest-free loan.

The reach of 7C is wide, and has put an end to the popular value-shifting arrangement so effectively employed using interest-free loan accounts. Structuring your estate utilising a trust still has many advantages, but it is crucial to obtain professional advice before proceeding.






What is compound interest? It is the money you earn by re-investing all the interest you earn. Compound interest is how the rich get richer.

Here’s an example of compound interest. You may have heard of this old chestnut: If someone were to offer you the choice between $1 million cash now, or a penny on day 1, with that figure doubled and compounded each day for 31 days, which should you take?

The correct answer is, you should take the latter because it will amount to $10,737,418.24. Sounds impossible, but the math works out:

Day 1: $0.01

Day 2: $0.01 x 2 = $0.02

Day 3: $0.02 x 2 = $0.04

Day 4: $0.04 x 2 = $0.08

Day 11: $10.24

Day 22: $20,971.52

Day 31: $10,737,418.24

Now it should be easy to understand why Albert Einstein supposedly said, “Compound interest is the greatest force in the universe.” Compounding interest is, after all, how the rich get richer.


#Project1000: Supporting 1000 Entrepreneurs to be Exceptional

Angelo Graham & Grow Recruitment have partnered to offer something amazing to all entrepreneurs: #Project1000.

The why:

• Others have helped us get where we are.

• We want to share what we have learnt.

• We can achieve more together (the power of the collective).

• We each have access to different networks, markets & skills.

• Bringing like minded individuals together in a working space

will create a network but also an idea space.


• Sat 4th Aug – Financial Focus

• Sat 18th Aug – HR, Recruitment

• Sat 15th Sep – Legal Focus

• Sat 13th Oct – Access to Markets

• Sat 3rd Nov – Marketing, Branding & Strategy

• Sat 17th Nov – Business Innovation


• Angelo Graham – Financial Advisor

• Bev Meldrum – Marketing & Design

• Alfred Botha – HR & Recruitment

• Thabo Skotoyi – Facilitator

• Graham Prinsloo – Law Firm

• Brad Sitzer – Innovation Specialist

The first successful introductory session was held on Saturday 14 July 2018 at the Harare Library in Khayelitsha, Cape Town.


Understand difference between saving and investing:

This morning I thought I would share an article I read last week written by Sizwe Dlamini, published via IOL. The article contained some key points of wisdom supplied by Emma Heap, managing director of retail at 10X Investments.

The article entitled, Understand difference between saving and investing highlights some key elements:

  • Saving’ means putting money aside for future use. It is spending postponed.”
  • “With few exceptions, we all need to save for retirement. Although the state does provide an old-age grant, this is currently a mere R1 600 a month, insufficient to maintain an acceptable standard of living.”
  • “Ideally, you should save 15% of your monthly wage or salary in a retirement fund over your entire working life.”
  • Investing is what you do with your savings in order to earn a return.”

The article is very simply written and makes a great point: We all need to save & the government pension at R1600 per month is not enough, by far.

In discussing financial wellness with my clients, I usually start with two very basic points (client dependent as always):

  1. Wealth Protection: You are your most important asset & therefore we need to protect YOU first.
  2. Wealth Creation: This would include looking at savings, investments & retirement planning as well as education planning if needs be.

The two steps above would allow us then to correctly identify & prioritize our financial planning process.

I trust you will enjoy the article and feel free to comment.