The draft Taxation Law Amendment Bill became available to the public for comment on 8 July 2016. The Amendment Bill contains the proposed incorporation of a new s7C, headed:

• “Loan or Credit Advance to a Trust by a Connected Person”.

On promulgation, s7C is expected to come into operation on 1 March 2017, and will be applicable in all years of assessment thereafter.

(There is a minority interpretation that it will only be applicable to loans made after 1 March 2017 – this I think is based more on hope than solid interpretation.)

While the section consists of few words, it holds many implications which go to the core of, and will largely neutralise the well-known and much-used, estate planning tool of interest free loan accounts.

However, these proposals should not come as a shock to tax planners, given the focus the fiscus has placed on the perceived loss of taxes, through the use of trusts – as is evident from the recommendations of the Davis Committee preliminary report.

In addition, there have been periodic warnings by the Minister of Finance during his yearly budget speeches that the state wished to curb the perceived loss; a message which was clearly echoed in the most recent budget.

While the general intent of these communications has been clear, some inconsistency appears in the proposed methods to be used and thus the detail in the Amendment Bill is somewhat surprising as it appears contrary to the recommendations of the Davis Committee who adopt a more benign approach to interest free loan accounts.

While s7C is not yet law and no matter what form it may ultimately take, it seems inevitable that the sun has set on the glory days of the interest free loan to trusts.

Without being alarmist, these developments will leave many a planner anxiously awaiting news on the fate of the sacred conduit principle.

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