Distributions to beneficiaries of an employee trust

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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.[1]

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.[2]

[1] No. 58 of 1962

[2] See section 10(1)(k)(i) and the definition of “remuneration” in paragraph 1 of the Fourth Schedule.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

The importance of having a work-life balance

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Having a job and a steady income plays a significant role in any person’s life, as it keeps us afloat and drives us to reach our full professional potential. However, when we have an unhealthy work-life balance, this can all come tumbling down.

An employee’s ability to establish and maintain a healthy balance between their work and personal commitments and responsibilities is referred to as a work-life balance. Companies have begun to recognise the importance of helping their employees to achieve this balance. Work responsibilities have also seen an increase recently and this leads to increased stress among employees as they struggle to find a balance between work and personal commitments.

Over the years, there have been dramatic changes in employees’ work patterns, as well as how and where they work. More and more companies have begun to embrace the digital and technological age, which means that work is no longer restricted to the workplace only. Technology enables employees to work anytime, anywhere, and from any internet-enabled device. This means that employees can be reached by employers and even clients 24/7, which makes achieving a healthy balance between work and your personal life even more difficult.

Having an unhealthy work-life balance has a negative effect on both employees and the companies they are employed by. Having an unhealthy work-life balance leads to high levels of stress which results in decreased productivity. Increased stress can also lead to health problems and absenteeism, which costs the company money. Finally, personal relationships and co-worker relationships amongst the employees can suffer, and lead to reduced job satisfaction.

Companies can implement various policies that will aid their employees in establishing and maintaining a healthy work-life balance. Many companies have started to provide their employees with flexible working hours, which helps employees shape and mould their work pattern to fit into their personal schedules. This reduces the conflict between professional and personal responsibilities significantly. Managers can also encourage their staff to use their annual leave, and set clear boundaries which state that staff should not respond to work-related emails and calls during non-working hours.

Finally, it’s not all about job satisfaction, personal satisfaction is equally as important. An employee’s ability to meet personal commitments has an enormous impact on their professional success. When employees have the opportunity to meet these personal commitments, it benefits the company, as the employee is not experiencing conflict between their professional and personal lives.

Helping employees establish and maintain a healthy work-life balance leads to increased job satisfaction as well as increased loyalty to their employer.

Once a company recognises the benefits of healthy work-life balance and implements policies to promote this balance, they will experience an enormous increase in productivity and increased retention of staff, which ensures that the company continues to thrive and succeed.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)