Commissioner for Inland Revenue v Friedman and Others NNO (14/91) [1992] ZASCA 190; 1993 (1) SA 353 (AD); [1993] 1 All SA 306 (A) (5 November 1992)

Commissioner for Inland Revenue v Friedman and Others NNO (14/91) [1992] ZASCA 190; 1993 (1) SA 353 (AD); [1993] 1 All SA 306 (A) (5 November 1992)

The majority held that a trust is not a legal person and does not qualify as a 'person' or 'taxable entity' under the Income Tax Act 58 of 1962. The Act does not provide for the levy of income tax on a trust per se in respect of undistributed income that does not accrue to any beneficiary. Trustees can only be taxed as representative taxpayers where trust income has accrued to a beneficiary but has not been received by them. In this case, the undistributed income did not accrue to any beneficiary, nor did it accrue to the trustees for their own benefit. There is no statutory basis for taxing the trustees in respect of such income. The appeal by the Commissioner was dismissed, and the...

Citation
[1992] ZASCA 190
Parties
Appellant: Commissioner for Inland Revenue; Respondent: Friedman and Others NNO
Court
Supreme Court of Appeal
Jurisdiction
South Africa
Judgment Date
5 November 1992
Case Number
14/91
Procedural Posture
Civil Appeal / Appeal From Witwatersrand Local Division; Judgment of Mc Creath J
Outcome
Appeal dismissed with costs, including costs of two counsel. Declaratory order granted in favour of the trustees.
Judges
Joubert, Botha, Kumleben, Nicholas, Harms
Legal Topics
Income Tax Act, Trusts, Representative Taxpayer, Undistributed Trust Income, Legal Persona, Statutory Interpretation
Tax Law Civil Procedure Income Tax Act Trusts Representative Taxpayer Undistributed Trust Income Legal Persona Statutory Interpretation

Case Brief

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Parties

Commissioner for Inland Revenue

Appellant

Friedman and Others NNO

Respondent

Procedural Posture

Civil Appeal / Appeal From Witwatersrand Local Division; Judgment of Mc Creath J

Legal Issues

  1. 1 Is a trust a 'person' within the meaning of the Income Tax Act 58 of 1962?
  2. 2 Is a trust, despite lacking legal personality, a taxable entity liable for income tax on undistributed income?
  3. 3 Was the Commissioner entitled to treat the trustees as representative taxpayers for undistributed trust income not accrued to any beneficiary?

Ratio Decidendi

The majority held that a trust is not a legal person and does not qualify as a 'person' or 'taxable entity' under the Income Tax Act 58 of 1962. The Act does not provide for the levy of income tax on a trust per se in respect of undistributed income that does not accrue to any beneficiary. Trustees can only be taxed as representative taxpayers where trust income has accrued to a beneficiary but has not been received by them. In this case, the undistributed income did not accrue to any beneficiary, nor did it accrue to the trustees for their own benefit. There is no statutory basis for taxing the trustees in respect of such income. The appeal by the Commissioner was dismissed, and the...

Court Disposition

Appeal dismissed with costs, including costs of two counsel. Declaratory order granted in favour of the trustees.

Orders

  • The appeal is dismissed with costs, including costs of two counsel.
  • It is declared that the Phillip Frame Will Trust is not a 'legal person' and is not a 'person' within the meaning of the Income Tax Act 58 of 1962.