Question 3

PART A

Bob Mofokeng (55 years old) created the Mofokeng Family Trust on 15 May 2020, an inter vivos trust to benefit his three children:

Name Age

Resident

Nelisiwe Mofokeng (unmarried)

Sara Dladla (married out of community of property)

16 South Africa 32 South Africa

Josh Mofokeng (unmarried) 25

England, UK

1) -

-

During the current year of assessment, the trust owns the following assets:

A property complex donated to the trust by Bob Mofokeng at its market value of

R2 200 000, on the date of establishment.

Interest-bearing bonds issued by a local bank. These bonds were inherited by the trust from Bobs late mother. The market value on the date of her death was R1 000 000.

The Independent Institute of Education (Pty) Ltd 2023

Page 7 of 13

23

2023

2) The following income accrued to the trust during the 2024 year of assessment:

R Net rental income 192 000 Local interest on bonds 128 000

320 000

3) The annual distributions approved by the trustee of the trust amounted to the following:

Sara received an amount of R80 000, paid pro rata out of all trust income.

Josh received an amount of R80 000, paid pro rata out of all trust income.

Nelisiwe received a R2 375 monthly annuity, paid pro rata out of all trust income.

The balance of the income was retained in the trust.

4) The trust deed stipulates that any retained rental income vests in equal shares in beneficiaries alive at the end of each year of assessment and will be paid out to the beneficiaries in 2035. Should a beneficiary pass away before 2035, the rental income not yet distributed will be paid to the estate of the deceased person.

Required:

Q.3.1

PART B

Calculate the Mofokeng Family Trusts tax liability for the year ended 29 February (10) 2024.

Q.3.2

Calculate the taxable income of Bob Mofokeng for the 2024 year of assessment.

Assume that the taxpayers do not earn any other income apart from that provided above.

Show all inclusions and exclusions separately with reasons.

(5)

Bob Mofokeng has approached you due to his recent diagnosis of a neurological disorder. He is currently updating his last will and testament and intends to distribute all his assets and related income generated, equally among his children in the event of his death.

He has heard about the potential tax benefits associated with a special trust and is interested establishing such a trust in his last will and testament.

Required:

Q.3.3 Q.3.4

Advise Bob on whether he may establish a special trust in terms of his will.

Discuss any possible tax advantages of a special trust compared to an ordinary trust.

(3)