Commissioner for the South African Revenue Service v R M Woulidge

The respondent established two trusts for his minor children and sold shares to the trusts on credit. The trusts initially had no assets, and although the sale agreement allowed for interest on the outstanding purchase price, no interest was ever charged. Years later, following a corporate restructuring and sale of shares to a third party, the trusts generated income. SARS issued revised assessments taxing that income in the hands of the respondent under section 7(3) of the Income Tax Act, contending that the income arose by reason of a donation or other gratuitous disposition, namely the interest-free credit.

The appeal succeeded only to the extent that the in duplum rule was held not to apply. The assessments for the 1990 and 1991 tax years were to be revised on that basis. No order was made as to costs in either the High Court or the Supreme Court of Appeal.

The case clarifies the application of section 7(3) of the Income Tax Act in trust and family arrangements, confirming that only the gratuitous element of a transaction is subject to attribution, not the entire transaction. It also establishes that the in duplum rule does not limit notional interest deemed under section 7(3), and underscores the importance of procedural fairness and issue definition in tax appeals.