The Abraham Krok Trust v The Commissioner for the South African Revenue Service

The Abraham Krok Trust originated from a 1973 notarial deed of donation and was reconstituted under a 1981 trust deed, which deemed the trust assets to be divided into six separate trusts for the benefit of six children, administered collectively. In 1994, Abraham Krok created six further trusts for the same beneficiaries. Each 1981 trust sold assets to its corresponding 1994 trust, with most of the purchase price remaining as a loan. In 1997, the trustees of the 1981 trusts made so‑called ‘awards’ to the 1994 trusts equal to the outstanding loan amounts, retrospectively to the 1996 tax year, and set these off against the loans. SARS assessed the trusts for donations tax on these awards, contending they constituted taxable donations. The trustees objected, arguing that the awards were either unauthorised (and thus invalid and not taxable) or, if authorised, exempt under section 56(1)(l) of the Income Tax Act as disposals made in pursuance of a trust.

The appeal was upheld and the cross‑appeal dismissed, both with costs including the costs of two counsel. The order of the Tax Court was set aside and substituted with an order setting aside the donations tax assessment.

The case is significant for clarifying the interpretation of trust deeds in the context of donations tax and confirming that wide discretionary powers to apply trust capital for beneficiaries’ benefit will be given their ordinary meaning. It also illustrates the operation of the section 56(1)(l) exemption and limits SARS’s ability to impose donations tax where trustees act within their powers.