Consider the following simplified example:
Assume that there are three beneficiaries of a trust, who are natural persons. In the 2013/ 2014 tax year the trust earns interest of R75,000.00 on its invested capital. If the trust retains the interest and pays tax on it, it gets no exemption and the tax liability at 40% is R30,000.00. Now assume that the trustees award the interest in equal proportion to the three beneficiaries. The tax liability of each beneficiary will be as follows: interest income R25, 000.00, of which R23, 800.00 is exempt (this would be R34, 500.00 for a beneficiary older than 65). The taxable balance is thus R1, 200.00 on which, even at the maximum marginal rate of 40%, the tax would be R480.00. The total tax payable on the interest would thus be R480 x 3 = R1, 440.00.