IN THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA

REPORTABLE

CASE  NO: 23/2003

In the matter between :

ESTATE R F WELCH
Appellant

and

COMMISSIONER FOR THE SOUTH AFRICAN REVENUE SERVICE  Respondent
___________________________________________________________________________

Coram:
MARAIS, ZULMAN, NUGENT, CONRADIE et CLOETE JJA
Heard:
11 MARCH 2004
Delivered:
21 MAY 2004
Donations Tax – Whether exigible  on value of assets settled upon trust primarily to
enable trustees to discharge settlor’s maintenance obligations in terms of an order for
divorce incorporating a consent paper which provided for the establishment of such
trust. Order to be found in para [73].
___________________________________________________________________________

J U D G M E N T

___________________________________________________________________________

MARAIS JA/

MARAIS JA:
[1] The issue in this appeal is whether, in the particular circumstances of the
case, the disposal of assets to a trust amounted to a donation upon which
donations tax is payable. The Special Income Tax Court presided over+ by
Foxcroft J held that it was not. A full court of the Cape High Court (Davis J with
Selikowitz and Van Reenen JJ concurring) reversed the finding but granted
leave to appeal to this court. The decision is reported at 2003 (1) SA 257 (C).
[2] The facts:
Mr R F Welch married twice. There was a child born of each marriage. His
second marriage was dissolved by a decree of divorce granted to him on 25
October 1996. The action was unopposed because the parties, each represented
by attorneys, had negotiated at arm’s length an agreement (‘the consent paper’)
which governed such matters as property rights, maintenance for Mrs Welch and
maintenance for the minor child, Tom, born of the second marriage. The consent
paper entailed the setting up by Mr Welch of a trust and the transfer to it of
assets to enable the trustees to fulfil the obligations to be undertaken by them.
The primary obligation of the trustees was to ensure that the provisions of the
consent paper which had been made an order of court were implemented. The

terms upon which the trust was to be established were set out in an annexure to
the consent paper.
[3] It is not necessary to do more than to summarise the import of the consent
paper and the trust deed. The consent paper ‘recognises (Mr Welch’s) legal
obligation to pay rehabilitative maintenance to defendant (Mrs Welch) as well as
to contribute towards the maintenance of the parties’ minor child, Tom’. It
provided that ‘(i)n discharge thereof’ Mr Welch would settle certain assets upon
a trust to be created ‘with the specific intention of providing income’ for the
purposes thereafter set out in the consent paper. Mrs Welch was to be paid R4
500,00 per month for 60 months or until her death or remarriage whichever
should occur first. The cost of a hospital plan to be taken out for her benefit for
as long as maintenance was payable to her was to be deducted from the amount
of R4 500,00. The maintenance payable was to increase each year by a
percentage equal to the percentage increase in the urban weighted average of the
consumer price index.
[4] The minor child, Tom, was to receive a contribution towards his
maintenance until he reached the age of 21 years or became self-supporting,
whichever occurred first. The amount was R1 000,00 per month (to be paid to
his mother) and was to be increased annually in the same manner as his mother’s

maintenance was to be increased. In addition all school fees, school uniforms,
school books, extramural activities, stationery and equipment had to be paid for.
So did all medical, dental, pharmaceutical, ophthalmologic  and related medical
expenses. If the child showed an aptitude for tertiary education he was to be
maintained until he had completed his tertiary study notwithstanding that he
might have attained the age of 21 years.
[5] In the event of the trust being unable to meet these obligations, ‘or any
portion thereof’, to Mrs Welch or the minor child, Tom, the obligations were to
revert to Mr Welch. His obligations under the consent paper were declared to be
binding upon his estate.
[6] Mrs Welch was to retain a property situate at Bergvliet, its contents, and a
Toyota Corolla motor car all of which assets were recorded to have been
financed exclusively by Mr Welch. As consideration ‘for the assets and
maintenance settled upon her’ in terms of the consent paper, Mrs Welch waived
in favour of the minor child, Tom, her right to any income or benefit which
might  have  accrued  or  might  in  the  future  accrue  to  her  from  another
trust, the R F Welch Family Trust. Mr Welch  was  also  bound  to  repay  to  the
P F Hofmeyer Trust a loan of R30 000,00 made by it to him to assist him in
acquiring the Bergvliet property for Mrs Welch.

[7] The trust deed was signed on 19 November 1996. It recorded that Mr
Welch was obliged in terms of the consent paper and order of court ‘to make a
settlement for the purposes and on the terms and conditions recorded in this
Trust Deed’. It created ‘The Carom Trust’ and vested in the trust all of Mr
Welch’s shares in NO Welch Engineering (Pty) Ltd, his half-share of two erven
at Ottery in the Cape and his one-third share in another erf at Ottery. The value
of the assets was R3 216 760,00. Mr Welch undertook to transfer the assets to
the trust ‘subject to the terms, conditions and provisions of this Trust Deed’. The
trust was empowered to accept additional amounts in the future ‘on the same
terms and conditions and for the purposes set forth in this Trust Deed’.
[8] A complicating factor is that the trust deed went further than simply
providing for fulfilment by the trustees of the obligation to pay maintenance for
Mrs Welch and the minor child, Tom. It created income beneficiaries and capital
beneficiaries some of whom were not persons to whom maintenance obligations
were owed in terms of the consent paper. While both Mr and Mrs Welch and the
children born of Mr Welch were beneficiaries, their rights were not similar in all
respects.
[9] As far as income was concerned, Mrs Welch and the minor child, Tom,
were entitled to have the ‘amounts due in terms of the consent paper’ paid

before any distribution of income to them or to Mr Welch and his other children.
It seems reasonably clear from this that there could be further distributions of
income over and above that distributed to meet the obligations spelt out in the
consent paper. Those further distributions might be made to one or more or all
of the named beneficiaries. The trustees were empowered to pay to beneficiaries
from the trust’s income amounts for, inter alia, ‘such purposes as may, in the
sole and absolute discretion of the trustees be for the benefit or in the interest of
the Beneficiary concerned’.
[10] However, the trustees were also empowered to accumulate, until the
vesting date when capital became payable to the capital beneficiaries, the
income of the trust without paying it or any part of it to the income beneficiaries.
That did not mean that they did not have to settle the maintenance obligations
due in terms of the consent paper to Mrs Welch and Tom; it simply meant that
they were not obliged to distribute any further income to them or to any other
income beneficiaries in their capacity as beneficiaries.
[11] Any income so accumulated had to be held ‘as part of the capital of the
Trust for all the purposes’ of the trust but the trustees were empowered to apply
‘the whole or any part or parts of the said accumulations as if the same were
income arising in the then current year’.

[12] The capital (which could of course have grown or have been diminished
by the vesting date) was to be distributed to the capital beneficiaries on the
vesting date stipulated in the trust deed. The capital beneficiaries were Mr
Welch’s children. That date was either the date upon which the youngest of any
children born to Mr Welch attained the age of 30 years or such date as might be
elected by the unanimous decision of the trustees. If at the date elected by the
trustees any capital beneficiary was not yet 30 years of age the capital payable to
him or her had to continue to be held in trust until that age was attained. That
notwithstanding, the trustees were empowered to make premature payments of
capital and/or income to such a beneficiary ‘for such reasons and for such
purposes as the trustees in their sole and entire discretion shall determine’.
[13] The net effect of these provisions was this. The trustees were obliged in
law to fulfil the maintenance obligations to Mrs Welch and the minor child,
Tom, which Mr Welch had undertaken in terms of the consent paper. The
consequence of that was that for so long as they did so, they would be
discharging Mr Welch’s obligations to Mrs Welch and Tom under the consent
paper.
[14] Mr Welch was to transfer assets to the value of R3 216 760,00 to the trust.
He did not agree to do so because he intended to make a gift of those assets to

the trustees to be used as they saw fit. He agreed to do so for two purposes. The
primary and dominant purpose was to enable the trustees to fulfil the
maintenance obligations which he had undertaken in terms of the consent paper.
He was obliged to set up a trust for that purpose. Pragmatically, the secondary
purpose was necessitated by the first. It was inherent in the situation that there
might be more income generated in the trust than was required to achieve the
primary purpose and that there might be capital remaining after the obligations
arising from the consent paper had been discharged. Some provision would have
had to be made to cater for that contingency. The ultimate destination of those
funds could not have been left in the air.
[15] What Mr Welch did to cater for those contingencies was to empower the
trustees to use income for the benefit of himself and Mrs Welch and his
children. In the case of Mrs Welch and Tom the exercise of such a power would
mean of course that they would receive income over and above that which they
were entitled to receive in fulfilment of the obligations arising from the consent
paper.
[16] As to capital, Mr Welch could of course legitimately have stipulated that
any capital remaining after the primary purpose had been achieved should revert
to him. Instead, he stipulated that it should go to his children. Herein lies the

complication which tends to cloud the analysis of what was intended and what
was done. Such an analysis is essential in order to determine whether the
transfer of assets to the trust was a donation attracting liability for donations tax.
[17] Unfortunately, before transfer of the assets had taken place, Mr Welch
died on 16 December 1996. His executors regarded the obligations undertaken
by him in terms of the consent paper to be binding upon his estate (‘the estate’)
and they caused assets to be transferred to the trust in the manner contemplated
in the consent paper.
[18] The respondent sought initially to tax the estate upon the value of the
assets settled upon the trust upon the premise that estate duty was payable.
Correspondence between the estate and the respondent ensued and it led to a
change in stance by the respondent. His contention then became that the entire
settlement was a donation to the trust within the meaning of s 54 of the Income
Tax Act 58 of 1962 (‘the Act’) and that donations tax on the whole of the value
of the assets (R3 216 760,00) was payable by the trust. The Special Income Tax
Court rejected the contention.
[19] The basis on which the full court reversed the judgment of the Special
Income Tax Court was, in my opinion, wrong. It interpreted the definition of
‘donation’ in s 55 (1) of the Act as requiring an identifiable quid pro quo or

consideration to be given by the trustees for the assets settled upon the trust if
the transfer of the assets was to escape being labelled a donation. It considered
that there was none given by the trustees and consequently that a donation as
defined to the trustees had taken place. It concluded that donations tax was
therefore payable upon the value of the assets transferred to the trust.
[20] The charging provision is s 54 of the Act. It reads: ‘Subject to the
provisions of section 56, there shall be paid for the benefit of the National
Revenue Fund a tax (in this Act referred to as donations tax) on the value of any
property disposed of (whether directly or indirectly and whether in trust or not)
under any donation by any resident (in this Part referred to as the donor).’

[21] The word ‘donation’ is defined in s 55 (1). It ‘means any gratuitous
disposal of property including any gratuitous waiver or renunciation of a right’.
The word ‘donee’ is also defined. It ‘means any beneficiary under a donation
and includes, where property has been disposed of under a donation to any
trustee to be administered by him for the benefit of any beneficiary, such trustee:
Provided that any donations tax paid or payable by any trustee in his capacity as
such may, notwithstanding anything to the contrary contained in the trust deed
concerned, be recovered by him from the assets of the trust’. The word

‘property’ is defined in s 55 as meaning ‘any right in or to property movable or
immovable, corporeal or incorporeal, wheresoever situated’.
[22] Some preliminary observations are appropriate. The test to be applied at
common law to determine whether the disposition of an asset amounts to a
donation properly so called (as opposed to a remuneratory donation) is so well-
settled that it hardly needs repetition. The test is of course that the disposition
must have been motivated by ‘pure liberality’ or ‘disinterested benevolence’.1
As it was put in De Jager v Grunder,2 ‘Was die dryfveer iets anders as suiwer
vrygewigheid  en welwillendheid jeens die eiser, was dit geen skenking nie.’
Furthermore, there is a presumption against donations in our law.3
[23] It is a question to what extent the definition of ‘donation’ in s 55 (1) of the
Act differs in any material respect from the common law concept of a donation.
It is also a question whether the definition of ‘donee’ in the same section is to
play any role in the interpretation of the definition of ‘donation’. There is no
reference  in  either  the  charging section (s 54) or the definition of ‘donation’ (s
55 (1)) to the word ‘donee’.

1   Avis v Verseput 1943 AD 331 at 345; 377.
2   1964 (1) SA 463 (AD) at 463D-E.
3   Timoney v King 1920 AD 133 at 139.

[24] It seems to me that the relevance of the definition of the word ‘donee’
arises only after it has been determined that there has been a donation within the
meaning of s 54 read  with  the  definition  of  the  word ‘donation’ in s 55 (1).
To do otherwise would be to put the cart before the horse. The definition of
‘donee’ would become relevant then only to determine who is to be regarded as
the donee in cases where a trustee has been interposed between the donor and
the intended beneficial recipient of the donation. In such a case the effect of the
definition of ‘donee’ is to deem the trustee rather than the beneficiary to have
benefited from the donation, even although the trustee obviously has not, and to
render the trustee jointly and severally liable with the donor for the donations
tax payable if the donor has not paid it within the prescribed period of three
months from the date upon which the donation takes effect.4
[25] Consistently with the effect of the latter provision (deeming the trustee to
be the donee) s 56 (1) (e) of the Act exempts from donations tax property
disposed of under a donation ‘if such property is disposed of under and in
pursuance of any trust’. The obvious purpose of this provision is to avoid
donations tax being levied twice upon what was in essence one donation by the
donor.

4   S 59.

[26] CIR v Estate Hulett5 is authority for the proposition that the definition of
‘donation’ in s 55 (1) is not synonymous with the common law concept of a
donation. In that case Friedman AJA said: ‘The word “donation” has acquired
under our law the meaning of a gratuitous disposal of property prompted by
motives of sheer liberality or disinterested benevolence …. .’ I cite this passage
because of the concatenation of the words ‘gratuitous disposal’ and ‘sheer
liberality or disinterested benevolence’. It suggests to me that the latter words
are intended to be elucidatory of the word gratuitous and not antithetical to it. In
his work on income tax6 Meyerowitz has suggested that ‘It can be said that
because of the definition of donations in the Income Tax Act, the aspect of pure
liberality or disinterested benevolence is not required’ and that the decision in
Hulett’s case provides support for that view.
[27] I do not agree with either the proposition or the suggestion that the
decision in Hulett supports it. In the passage7 cited by Meyerowitz the learned
judge was not purporting to decide any such point. He was simply rejecting an
argument that the definition of the word ‘donation’ in one Act could be applied
in a different Act where it was undefined. In what particular respect or respects

5   1990 (2) SA 786 (A) at 797H-J.
6   Meyerowitz on Income Tax 2000-2001 p 31.3.
7   Hulett, at 797H.

the word as defined differed from the undefined word he did not purport to
decide. He merely said that the common law meaning of the word had a
meaning ‘differing substantially from the statutory definition sought, by the
argument, to be attributed to it’.
[28] Nor do I read the decisions in CIR v Kohler Estate8and Estate Furman
and Others v CIR9as deciding that a gratuitous disposal of property can exist
without an accompanying motive of sheer liberality or disinterested
benevolence. Those decisions were concerned solely with the meaning of the
word ‘disposition’ in the provisions under scrutiny in those cases.
[29] In ITC No 154510 the Cape Special Income Tax Court regarded it as so
obvious that the word ‘gratuitous’ in the definition of the word ‘donation’ did
not eliminate the need to enquire into the motive with which the disposal was
made, that it did not regard it as necessary to provide any reasons for so
thinking. I share that view and provide reasons only because the contrary was
argued before us.
[30] In my opinion the legislature has not eliminated from the statutory
definition the element which the common law regards as essential to a donation,

8   1953 (2) SA 584 (AD).
9   1962 (3) SA 517 (AD).
10  54 (1992) SATC 464 at 475-6

namely, that the disposition be motivated by pure liberality or disinterested
benevolence and not by self-interest or the expectation of a quid pro quo of
some kind from whatever source it may come.
[31] If one were to scour the dictionaries to find a single word apt to convey
that the disposition should be motivated by pure liberality and not in expectation
of any quid pro quo of whatever kind, one would not find a better or more
appropriate word than ‘gratuitous’. The shorter OED gives the following
meaning to the word:
‘1.
Freely bestowed or obtained; granted without claim or merit; costing
nothing to the recipient; free.
2.
Done, made, adopted or assumed without any good ground or reason;
uncalled for; unjustifiable.’
[32] The ordinary meaning of that word in the context of the making of a
disposition includes, I suggest, ‘without obligation’; ‘for no return’; ‘without
any quid pro quo being given or expected’. None of those meanings is
incompatible with the co-existence of a motive of pure liberality or disinterested
benevolence. On the contrary, they are indicative of the co-existence of just such
a motive. If the legislature wished to alter the meaning which the common law

assigns to the word donation in that particular respect it could not have chosen
more inappropriate language to achieve that objective.
[33] When the legislature intended to treat as if they were donations, disposals
of property which were not when judged by common law standards, it expressed
itself plainly. Thus s 58 of the Act deems to have been disposed under a
donation a disposal of property for a consideration, which, in the opinion of the
Commissioner, is not an adequate consideration, provided that in determining
the value of the property a reduction must be made by an amount equal to the
value of the consideration.
[34] Here, unlike s 54 and the definition of ‘donee’ in s 55 (1), the words
‘under a donation’ do not qualify the words ‘where any property has been
disposed of’ in s 58. It follows that the definition of ‘donation’ in s 55 (1) plays
no role in interpreting or giving effect to the provision in s 58. It is thus clear, in
applying this provision, that the motive for the disposal is irrelevant; it is simply
a question of whether the consideration given for a disposal of property
(whatever the motive) was, in the opinion of the Commissioner, adequate.
[35] There has been no such clarity of expression in the definition of
‘donation’ in s 55 (1). In my view, it is entirely consistent with a legislative
intention not to depart from the common law conception of a donation in that

particular respect. To the extent that the definition may be ambiguous (and I do
not think it is) it would of course have to be interpreted contra fiscum.
[36] It may perhaps be suggested that abandonments and other possible modes
of disposing of property may be gratuitous but that they are not necessarily
accompanied by motives of pure liberality or disinterested benevolence and that
they would therefore be hit by the definition of donation. Where the
abandonment takes the form of consignment to a rubbish bin I grant that an
accompanying motive of pure liberality or disinterested benevolence is not easy
to discern. (Possibly the raiders of rubbish bins may be the intended
beneficiaries but that seems fanciful.) The true answer lies, I think, in the
context of the definition read with the Act. It contemplates the existence of
another person in whom the property disposed of is intended to vest or (in the
case of waiver or renunciation of a right) a person whose obligations to the party
waiving or renouncing a right will cease to exist. It is for that reason that
abandoned property (res derelictae) does not fit into either the common law
mould or the statutory mould of a donation.
[37] It may of course be different where the abandonment is more apparent
than real. For example, an eccentric multi-millionaire who throws a diamond

into a haystack with an accompanying public statement that he has done so and
that whoever finds it first is welcome to it, may well be said to have donated it
(in the common law sense of the word) to whoever finds it first or to have
gratuitously disposed of it (as the statutory definition of donation puts it) to that
person. But these and similar conundrums are really beside the point. They are
just not potent enough to dispel the impact of the choice of the word ‘gratuitous’
in the definition when read together with the antecedent existence of a well-
known  set of common law criteria which determine whether a disposal of
property is a donation. As I have said, far from the use of the word signalling an
intention to jettison these criteria, it signals the contrary.
[38] I am fortified in my belief that the definition does not eliminate the need
to enquire whether the motive for the disposal was or was not pure liberality or
disinterested benevolence by considering the startling consequences of a
contrary conclusion. There is nothing in South African law which prohibits a
citizen from establishing an inter vivos trust for any lawful reason. The motive
with which a trust may be established can vary from, at one end of the scale,
purely altruistic and benevolent to, at the other, the discharge of legally binding
obligations. In neither case is there any intention to benefit the trustee and that is
so despite the fact that in law the bare dominium of the property settled upon the

trust vests in the trustee. In the first-mentioned case there is of course an
intention to bestow a gratuitous benefit upon the named beneficiary and a
donation has taken place in both the common law sense, and a fortiori, if one
assumes it has a wider meaning, in the defined sense of the word. Where that is
the motive, liability for donations tax cannot be avoided simply by interposing a
trustee between the donor and the beneficial recipient of the asset transferred to
the trustee. In such a case the effect of the definition of ‘donee’ in s 55 (1) is that
the trustee is deemed to have been the donee even although the trustee has to
administer the donation for the benefit of the beneficiary.
[39] In the second case, there is no intention to make a donation in any sense
of the word. The funds settled upon the trust are not intended to be given to
anybody as a gift; they are intended to be used to settle legal obligations which
burden the settlor. The trustee undertakes to fulfil the mandate given to him and
in fulfilling it discharges the obligations of the settlor to the relevant third
parties. If the mere fact that the trustee in his own right has not paid the settlor
anything or given some quid pro quo (other than an undertaking to fulfil the
mandate imposed by the trust deed) for the funds given to him for that purpose
is to be the sole criterion for imposing a liability to pay donations tax, it is

difficult to conceive of any case in which a trust can be established and assets
transferred to the trust where a liability for donations tax would not arise.
[40] Trustees do not ordinarily pay or give consideration in return for benefits
which third parties are to receive. Nor do they do so in return for the bare
dominium of the assets which are vested in them. It would follow that all such
trusts, whatever their purpose, are liable for donations tax unless exempt under
one or other of the provisions of s 56 of the Act. A person who has sufficient
insight into his own habitual financial profligacy to sequester enough money in
the hands of a trustee to ensure that his future provisional tax and income tax
obligations will be met, will have to accept that 25% of the funds that he makes
available to his trustee to ensure his tax obligations to the Commissioner are met
on due date, will have to be paid to the selfsame Commissioner. That is a
consequence which can, I think, rightly be described as absurd.
[41] The example I have given is of course specifically designed to evoke
derision from which it is but a short step to the attachment of the label ‘absurd’
to it. However, many more examples of absurdity can be given which are not so
rarely encountered that they may be discounted as purely hypothetical and
unlikely to arise in practice. A judge who orders a large damages award to an
orphaned minor to be paid to a trust to be formed is not ordering the defendant

to make a donation. The defendant is not making a donation in paying the
ordered damages to the trustee. It is fulfilling an obligation imposed by law. The
trustee is not the beneficiary of the trust and the beneficial interest in the award
is vested in the orphan. The trustee has not given any quid pro quo to the
defendant. Even the commitment by the trustee to administer the award for the
benefit of the orphan is not really a quid pro quo given to the defendant. It is a
commitment given to the court. Yet it is plain that by paying the sum ordered to
the trustee the defendant will be discharging its obligation to the orphan. If the
trustee misappropriates the money that will not revive the defendant’s liability.
The defendant has certainly not made a donation motivated by sheer liberality
nor has it gratuitously disposed of the money paid to the trustee. Yet, if the
submissions of counsel for the Commissioner are correct, the defendant will be
liable for donations tax together with the trustee.
[42] The examples can be multiplied. People who spend much of their lives in
foreign climes but who still retain substantial links with South Africa and set up
trusts which they endow with funds to enable the trustee to meet their recurring
and ongoing financial obligations to their creditors in South Africa are not
disposing of money by donating it in either the common law sense of the word

or in the statutory sense (if it be different from the common law sense) of
gratuitously disposing of it.
[43] It is so that logic, fairness and consistency are not essential attributes of
taxing legislation and that that has to be borne in mind when interpreting such
legislation. But that does not mean that in interpreting taxing provisions one
should assume a priori that an interpretation which is illogical, unfair and
inconsistent is probably what was intended. Nor does the fact that it is a taxing
provision which is under consideration mean that where the language employed
is reasonably capable of two possible interpretations, one of which will yield
absurd results, and another which will not, the former should be preferred.
[44] In the present case, the facts are such that whatever view one takes of the
definition of ‘donation’ there has been no donation of R3 216 760,00. If one
accepts that a motive of sheer liberality or disinterested benevolence remains an
essential element in the inquiry and has not been excluded by the definition, it is
clear that the assets were not settled upon the trustees with any such motive. The
primary and dominant purpose was to enable them to satisfy the legal
obligations which the consent paper which had been made an order of court
imposed upon Mr Welch.  I shall return in due course to the implications of the

subsidiary motive of providing for excess income and remaining capital to go to
persons to whom he was under no legal obligation.
[45] If one does not accept that those criteria (sheer liberality or disinterested
benevolence) remain relevant, it is at least clear that if some realistic
consideration is being received by the settlor, the disposal cannot be regarded as
‘gratuitous’.11 Here the consideration is obvious. Mr Welch was under a legal
obligation to pay maintenance for Mrs Welch and Tom. That was a debt due by
him to them and it would not cease to exist upon his death.12 The mechanism
agreed upon by Mr and Mrs Welch for ensuring that this obligation was
discharged was the establishment of a trust which was to be provided with
sufficient assets to enable the trustees to meet those obligations. If they did so
(and they were obliged to do so in terms of the trust deed), Mr Welch’s
obligations would be pro tanto discharged.
[46] The fact that he could not entirely and permanently slough off his liability
to Mrs Welch and Tom by establishing the trust and that he would remain liable
to them in the event of the trust being unable to fulfil the maintenance
obligations does not derogate from the fact that he disposed of the assets for a
substantial quid pro quo. That quid pro quo was a relinquishment by Mrs Welch

11  ITC Case No 1448 51 (1989) SATC 58 at 63. ITC Case No 1545 54 (1992) SATC 464 at 476.
12  KBI v Steyn NO 1992 (1) SA 110 (A) at 119-120B; 120D-E.

of her right to claim the agreed maintenance for herself and Tom from Mr
Welch for so long as the trustees fulfilled their obligation to pay that
maintenance and an undertaking by the trustees to fulfil that obligation.
[47] That consideration or quid pro quo was not illusory or insubstantial.
Viewed  in  balance  sheet  terms  Mr  Welch  transferred  assets  to  the  value
of R3 216 760,00 to the trustees. He also had a liability to Mrs Welch and Tom
in terms of the consent paper and court order. As against that, he received from
the trustees an asset in the form of an undertaking by them to discharge his
liability to Mrs Welch and Tom. That asset cannot be ignored in deciding
whether the transfer of the assets to the trustees was gratuitous. Its acquisition by
Mr Welch was the consideration for the transfer. Without it Mr Welch obviously
would not have been willing to transfer the assets.
[48] There was also of course a quid pro quo given by Mrs Welch. She waived
her right to the income from the R F Welch Family Trust. She agreed to look to
the trust and not to Mr Welch for the agreed maintenance payable to herself and
Tom for as long as the trustees were able to discharge those obligations by
utilising the assets which had been settled upon the trust. To suggest that Mr
Welch transferred the assets to the trustees in return for nothing of any value

would be to place a wholly unrealistic and erroneous interpretation upon the
transaction.
[49] It remains to deal with the complications arising from the secondary
purpose (set out in para [8]) for which the trust was created. It may well be that
in so far as income or capital might be paid to the beneficiaries (over and above
the maintenance payable to Mrs Welch and Tom) a donation would have been
made. But the beneficiaries’ expectation of receiving any such payments would
be no more than a spes. It might or might not happen. The problems associated
with attempting to assess the probability or improbability of that spes maturing
into an actual receipt of income or capital are legion. Imponderable or relatively
imponderable factors such as future inflation rates, investment returns,
investment expertise, the prospect of remarriage, the possibility of serious
permanently disabling injury or illness occurring, and the possibility of early
death of one or more of the beneficiaries bedevil reliable prognostication. Yet
the effort may sometimes have to be made. Indeed, in invoking s 58 the
Commissioner has to assess as best he can what the value is of the consideration
that has been received for the disposal of the property. In the present case (in
which s 58 was not invoked by the Commissioner) that would have involved
assessing what the value to Mr Welch was of Mrs Welch’s renunciation of her

right to income from the R F Welch Family Trust in favour of Tom. I say this
bearing in mind that maintenance to be paid to a minor child is always subject to
variation on good cause shown and consequently that income paid to Tom which
is separate and distinct from income paid to him through his mother by the
Carom Trust by way of maintenance would be relevant to an assessment of the
extent to which he could call upon the trustees of the Carom Trust or Mr Welch
to maintain him.13 Any assessment of the value of the consideration received by
Mr Welch would also involve assessing the value to him of transferring (even if
only conditionally and subject to reversion to him) to the trustees the obligation
to fulfil the obligations undertaken by him in the consent paper and court order.
[50] The short point is this. However difficult the assessment may have been, it
may have been open to the Commissioner to invoke s 58 in order to recover
donations tax on such part of the sum of R3 216 760,00 for which, in his
opinion, no adequate consideration was given. But he did not do so. Instead he
opted to regard the entire sum as a gratuitous disposal. In that, he was wrong. I
might add that even if it were to be held that there was a donation to the trustees
it would be obvious that they received no more than the bare dominium of the
assets. It is that which would have to be valued and it is difficult to see how it

13  Cf KBI v Steyn NO  1992 (1) SA 110 (A) at 120C-J.

could be assigned any value.14 And if what fell to be valued was the mere spes
of the beneficiaries that they might receive income or capital after the
maintenance obligations of the trust had been met, the difficulties alluded to in
para [49] would arise. On any view of the matter an assessment of donations tax
based on the premise that the value of the donation was R3 216 760,00 was not
permissible. It follows that the assessment for donations tax cannot be allowed
to stand.
[51] The decision in Ogus v Secretary of Inland Revenue15 may appear at first
blush to run counter to the conclusions I have reached and to contain dicta in
conflict with some of the observations I have made. But if account is taken of
the unique nature of the obligation which the settlor in that case imposed upon
the trustees, namely, to pay or indemnify him for the donations tax payable on
the sum of money which he settled upon the trust, and in particular of an
observation by the court to which I shall return, I do not think there is any clash.
[52] The key to an understanding of the decision in that case that donations tax
was payable upon the whole of the sum of money settled upon the trust and not
upon that sum less the donations tax payable upon it, lies in the circuity of
reasoning which is inherent in the argument of the settlor as to the interpretation

14  Cf CIR v Estate Crewe & Another 1943 AD 656 at 686 and 696.
15   1978 (3) SA 69 (T).

of the term in the trust deed imposing the obligation to pay or indemnify the
settlor for the donations tax payable. Although this was not articulated by the
court I think that it was this circuity of reasoning which consciously or sub-
consciously underlay its decision.
[53] There is a world of difference between, on the one hand, the nature of the
obligations undertaken by the trustees in the hypothetical examples I have
postulated in paras [40], [41] and [42] of this judgment and the obligations
undertaken by the trustees in this case, and, on the other, the obligation
undertaken by the trustee in Ogus’s case. In the former class of case the corpus
(or part of it) is plainly given to the trustee to be used to discharge legal
obligations which the settlor would have had to discharge himself and which are
clearly identifiable as obligations which have an existence independent of the
existence of the trust. It is therefore notionally possible to say that, to the extent
that the settlor settled funds upon the trustee to enable him to discharge the
settlor’s independently existing legal obligations (whether present or future),
there has been no donation or gratuitous disposal of those funds because he has
received a quid pro quo of equivalent value.
[54]  Ogus’s case differs toto caelo. Donations tax liability cannot exist absent
a donation which spawns it. And the quantum of the tax is dependent on the

value of the donation. Unless the value of the donation is known or can be
assessed, it will be impossible to quantify the donations tax liability. Where, as
in Ogus’s case, a settlor imposes an obligation upon a trustee to pay or
indemnify him for donations tax, he cannot be said to have received a
consideration in that amount and therefore to have donated less than the full
amount he settled upon the trustee. Even if he had subjectively intended to bring
about that result, he would not have been able to achieve his purpose in law. The
reason is this.
[55] Postulate a settlor who settles R1 000 000,00 upon a trustee for the benefit
of a named beneficiary but stipulates that donations tax must be paid by the
trustee (or that he, the settlor, must be indemnified for paying it himself). If the
donation is taken to be R1 000 000,00 and the rate of tax is say 20%, the tax will
be (ignoring exemptions) R200 000,00. But, argues the settlor, ‘I should not be
taken to have donated R1 000 000,00; I should be taken to have donated only
R800 000,00 because payment by the trustee of the tax of R200 000,00 on the
amount of R1 000 000,00 was the consideration I received for settling an
equivalent amount upon the trustee.’
[56] The problem with this argument is that it is irremediably circuitous and
involves fictions. If it is indeed so that the settlor must be taken to have donated

only R800 000,00 then the donations tax would be 20% of R800 000,00 and not
20%  of  R1 000 000,00.  The  tax  would  then  be  R160 000,00  as  opposed  to
R200 000,00. But the trustee would then have a balance of R840 000,00 and not
R800 000,00 at his disposal for the benefit of the beneficiary. The difference is
R40 000,00. That sum will have escaped the levying of donations tax upon it.
[57] In effect, the argument results in using the fictional incidence of donations
tax upon the entire sum of R1 000 000,00 to reduce the amount upon which the
duty actually payable is to be calculated. The process entails not one but two
calculations of donations tax. The first is a purely notional and fictional one
which yields an amount of tax which is not intended to be actually paid and
which, when fictionally deducted from the sum of R1 000 000,00, leaves a
fictional balance of R800 000,00 for the beneficiary. The second is a calculation
of the tax which is intended to be actually paid. The base for this calculation is
the fictionally arrived at balance of R800 000.00. It reduces the tax payable to
R160 000,00.
[58] There can be no justification for reducing, before calculating the tax
actually payable, the sum of R1 000 000,00 by deducting from it a purely
hypothetical sum of R200 00,00 said to represent donations tax payable, when it
has not actually been paid and there is no intention of actually paying it. If that

was what was intended by the settlor it was not a result attainable in law. In the
example I have given donations tax must be calculated on the  full  amount of
R1 000 000,00 because, if it is not, there will be no other way in which it can be
calculated so as to give effect to the term requiring the trustee to pay the
donations tax or indemnify the settlor for having paid it. Lex non cogit ad
impossibilia.
[59] The choice then is between interpreting the term imposing the obligation
as being impossible of performance and, subject to possible arguments relating
to severability, putting the validity of the entire settlement at risk, or interpreting
it as premised upon the entire sum of R1 000 000,00 being and remaining the
intended donation, but subject to the proviso that if the settlor has to pay the tax
the trustee will have to reimburse him using the funds donated. Faced with such
choices, the law favours the interpretation which will give effect to what has
been agreed rather than one which will render futile what has been agreed.16
[60] The above, with respect, appears to me to be the inarticulate major
premise of the judgment in Ogus’s case and the dicta  to be found in it should be
confined to the special nature of the obligation undertaken by the trustee in that

16   ‘Deeds . . .  shall be so construed as to operate according to the intention of the parties, if by law they may;
and if they cannot in one form, they shall operate in that by which the law will effectuate the intention.’
Broom’s Legal Maxims, p 363. This is of course the effect of the maxim  ut res magis valeat quam pereat.

case. An observation by Boshoff AJP appears to bear this out. He said: ‘There
was no question of a handing over of an amount of money with an instruction or
direction that it should be applied for the purposes of tax.’17 I read that as
indicating that the position will be different in cases such as I have postulated in
paras [40], [41 and [42].
[61] Although ITC Case No 119218 was not referred to by either counsel or the
two courts through which this case has passed, it is unfortunately necessary to
consider its implications for this case before ending this judgment. With much
of what was said by Trollip J in that case I respectfully agree but some of the
court’s conclusions may, in my opinion, be unsound. The court was dealing with
three trusts set up by the settlor for the benefit of members of his family. The
beneficiaries were to obtain no benefit from the trusts until after his death. In the
meantime the corpus of the trusts was vested in the trustees and the income
derived from it was to be paid to the settlor. The Commissioner levied donations
tax on the value of the corpus in each of the trusts while the settlor was alive.
[62] The settlor objected and relied upon the exemption from donations tax in s
56 (1) (d) of the Act. It read: ‘Donations tax shall not be payable in respect of
the value of any property which is disposed of under a donation – (d) in terms of

17   At 73C-D.
18  35 (1973) SATC 213.

which the donee will not obtain any benefit thereunder until the death of the
donor.’ The court held that the beneficiaries had no more than a spes of
benefiting and that they would not obtain or acquire any pecuniary advantage,
profit or gain before the donor’s death. Their interest was said to have ‘no
present inherent value’ and because they would receive no benefit from the
beneficial interest in the corpus of each trust until after the donor’s death, no
donations tax was payable on those benefits. With that I have no quarrel. (Estate
duty is another matter.)
[63] However, the court proceeded to hold that although the trustees had
received only the bare dominium of the corpus of the trusts, ‘(i)n the hands of a
beneficiary  that  would  have  a  value, capable  of  being determined  under s
62 (1) (c), and it would constitute a pecuniary advantage, profit or gain;
consequently, as the trustees received it for the benefit of the ultimate
beneficiaries, whoever they may be, they must be regarded as having received
that benefit in their representative capacity as “donees” within the meaning of s
56 (1) (d)’.19 That benefit, so it concluded, was not exempt under s 56 (1) (d)
because it was a benefit obtained before the donor’s death. Donations tax was

19   At 220.

therefore chargeable but only on the value of the bare dominium of the assets
delivered to the trustees under each of the donations.
[64] Faced with a contention that such an interpretation of s 56 (1) (d) would
render redundant and otiose the exemption in s 56 (1) (l) (‘if such property is
disposed of under and in pursuance of a trust’), the court’s only answer was that
the provision ‘was probably inserted ex abundante cautela to make it crystal
clear that property disposed of under and in pursuance of a trust was not a
gratuitous disposal of property’.20
[65] It is these conclusions in paras [63] and [64] which seem to me to be
suspect. It is implicit in them that even although the donor under an inter vivos
trust intends to donate say R1 million to a nephew when he attains the age of 30
years and settles that sum upon the trustee to be held until that occurs, no
donations tax can be levied upon the amount of R1 million when the nephew
receives it because it is not a ‘gratuitous’ disposal by the trustee. The only
donations tax recoverable is that levied upon the value of the bare dominium
vested in the trustee when the trust was established. The net result is that what
was plainly a donation of R1 million to the nephew will escape donations tax but
the initial vesting of the bare dominium of that sum in the trustee will attract

20   At 216.

liability for donations tax. But its value then is zero. So no tax is payable. It is to
be doubted whether that could ever have been the intention of the legislature.
[66] Moreover, the learned judge’s relegation of the provisions of s 56 (1) (l)
to the category of a provision enacted ex abundante cautela only to make clear
that property which passes from a trustee to a beneficiary is not a gratuitous
disposal appears to me to probably be unjustified. First, one does not lightly
conclude that self-standing statutory provisions are simply repetitive of what has
already been clearly enacted. Secondly, there seems to be a self-contradiction
inherent in the proposition. The provision appears in that section of the Act
which exempts certain donations from liability for donations tax. If a disposal is
not a donation as defined in s 54 there can be no talk of it being exempted from
liability for donations tax. No tax is payable because  it  is  not  a  donation;  not
because  it  is  a  donation  but  exempt under s 56.
[67] Herein lies, so it seems to me, the possible fallacy in the approach of
Trollip J. The manifest purpose of s 56 (1) (l) (and all the other sub-paragraphs
of s 56) is not to tell one what are and are not donations, but to tell one what
donations will not attract liability for donations tax. To use the provision to
determine whether a donation has taken place, is to fail to understand that it has

no application at all unless a donation has taken place and that whether a
donation has taken place is governed entirely by other provisions of the Act.
[68] Thirdly, the learned judge’s emasculation of the provision results in one
being hard pressed to find some possible field of application for the exemption.
After all, if, as the learned judge thought, no disposition by a trustee to a
beneficiary could rank as a donation because it would not be gratuitous, how
could liability for donations tax ever arise? Why exempt from liability a
donation which ex hypothesi, could never exist?
[69] Fourthly, the interpretation accorded s 56 (1) (l) appears to negate its
obvious purpose. The scheme of the donations tax provisions in the Act is plain.
Disposals of property which are not donations do not attract liability for
donations tax. Those which are donations do. Because trusts are frequently
employed to confer benefits which are in fact donations, special provision is
made to cater for that. The provision made is primarily in s 54 which levies the
tax upon property disposed of under a donation by a resident donor whether or
not it has been disposed of directly, indirectly, or via a trust. The donee in a
donation is defined in s 55 (1) as the ‘beneficiary under a donation’ and the
definition also artificially includes a trustee if ‘property disposed of under a
donation [is] to be administered by him for the benefit of any beneficiary’.

Section 59 renders the donor liable to pay the tax but if he fails to pay it
timeously the trustee is to be jointly and severally liable for the tax. The proviso
to the definition of ‘donee’ enables the trustee, if he has paid or is liable to pay
the tax, to look to the assets of the trust for reimbursement. In terms of s 60 (1)
the tax becomes payable within three months (or such longer period as may be
allowed by the Commissioner) from the date upon which the donation takes
effect. Section 55 (3) provides that ‘a donation shall be deemed to take effect
upon the date upon which all the legal formalities for a valid donation have been
complied with’.
[70] The import of all this is that the interposition of a trustee between the
donor and the beneficiary will not enable the donor to avoid liability for
donations tax if the disposal of the corpus of the trust is a donation as defined.
Where it is, and despite the trustee having no beneficial interest in the corpus
while it is vested in him, he is regarded as if he were the donee under the
donation and the donation is ‘deemed’ to have taken effect at latest upon his
receipt of the corpus. The donor becomes liable immediately to pay donations
tax upon the full value of the dominium plenum of the corpus (less any amount
excluded by virtue of s 56 (2)) and not merely upon the value of the bare
dominium. Failure by the donor to pay within the time allowed for payment

renders the trustee liable to pay the tax. If either of them does so liability for
donations tax on the donor’s donation will have been discharged. (And even if it
has not, they remain liable for the tax, despite the fact that the beneficiary may
have already received the corpus.) Section 56 (1) (l) seems to be intended to
protect the donor and the trustee from the levying yet again of donations tax
upon the ultimate disposal by the trustee of the corpus to the beneficiary who
gives nothing in return for it. Its apparent purpose is simply to avoid taxing
twice what is in reality one donation traceable to the initial act of the donor in
settling assets upon the trust.
[71] The implications of these aspects of the judgment of Trollip J (if correct)
for the case before us are these. What the beneficiaries may receive from the
trustees (whether they be payments to discharge the maintenance obligations or
simply payments of excess income and capital) cannot be classified as donations
because payments emanating from the trustees are not gratuitous. If what the
trustees receive from Mr Welch by way of assets exceeds in value what is
needed to satisfy the maintenance obligations there is pro tanto a disposal of
property under a donation to the trustees to be administered by them for the
benefit of the beneficiaries. The trustees are thus donees by definition and are
potentially liable to pay donations tax on the value of the assets settled upon

them. But in valuing the property disposed of to the trustees it is only the value
of the bare dominium of that excess which is relevant because that is all they
have received under the donation. The value according to the decision in CIR v
Estate Crewe & Another21 is zero. The net result is that no donations tax is
payable at all.
[72] It seems therefore that whether the aspects of ITC Case No 1192 which I
have questioned were rightly or wrongly decided does not affect the outcome of
this case which would be the same in either event. It is therefore not necessary,
despite my criticisms, to decide finally whether it should be overruled as
erroneous. Nor would it be advisable to do so in the absence of any argument
concerning it at the hearing.
[73] It is ordered that the appeal be allowed with costs including the costs of
two counsel and that the assessment of the Commissioner that the appellant is
liable for donations tax upon the sum of R3 216 760,00 is set aside. The costs
are to include the costs of the application for leave to appeal.

21   1943 AD 656 at 686 and 696.

_____________________

R M MARAIS

JUDGE OF APPEAL

ZULMAN JA)
CLOETE JA )  CONCUR

CONRADIE JA:
[74] I regret that I am unable to agree with my brother Marais that the appeal
should succeed. Estate planners have for many years known that a person who
wants to transfer his or her assets to a trust and avoid paying donations tax
cannot simply give them to the trust: the trust must buy them. The purchase
price is usually left owing bearing a rate of interest that is not so low as to alarm
the Revenue. When the settlor dies his estate owns the claim to the depreciated
purchase price and the trust owns the assets which with any luck have grown in
value. There is no donation. The trust has given a quid pro quo.
[75] The facts in Ogus v Secretary for Inland Revenue1978 (3) SA 67 (T)
resemble those set out in the judgment of my brother Marais. In Ogus the
taxpayer provided that it was ‘an express condition’ of the donation that the trust
should be liable for and indemnify him against liability for donations tax in
respect of the donation made in terms of the deed. It was argued that the

taxpayer had instructed the trustees to discharge his liability for donations tax
and that it
‘…was as much paid by the appellant when it was paid directly by virtue of his direction
under the trust, as if it had been paid by his own cheque. The appellant put a fund in the hands
of the trustees for the purpose of paying the tax and the trustees applied that fund in paying
the tax, acting on the mandate of the appellant and not on the mandate of any of the
beneficiaries. This in short means that the amount of the donations tax was not a donation at
all but was meant to be the means of procuring the payment of a legal obligation of the
appellant and consequently did not form part of the cumulative taxable value of property
disposed of under a donation by the appellant.’
[76] This was essentially the appellant’s argument here: Mr Welch put a fund
in the hands of the trustees for the purpose of paying his present and future,
contingent, debts and if, acting on his mandate, they applied that fund to
discharging his liabilities there was no donation of that part of the capital
transferred to the trust to discharge the appellant’s obligations. In each case,
therefore, the benefit to the settlor was the discharge by the trust of a liability.
[77] Boshoff AJP who gave the judgment for the full court in Ogus, dealt with
the argument in that case as follows (at 79E – G) :
‘ I have some difficulty in following the argument that, because clause 20 constitutes the fisc
an adjectus solutionis gracia, mutual obligations came into being between the appellant and

the trustees and, because of the obligation of the trustees to pay the fisc and relieve the
appellant of a liability for tax, the appellant receives a consideration for the donation made to
the trustees, and, because he receives a consideration, s 58 applies and the value of the
donation must be reduced by the value of the consideration.
As has already been indicated, clause 20 is merely a term in the deed of trust dealing with the
liability for the donations tax. It is in its context no more than a circumstance under which the
trust was created by the appellant. It is certainly not in the nature of a reciprocal obligation. A
reciprocal obligation is found in a synallagmatic contract, that is a contract which contains
mutual reciprocal engagements by each of the two parties towards the other to perform his
portion of the contract, and this performance must take place pari passu; see Maserowitz v
Little 1911 TPD 1061 at 1063. In the context of s 58 the word “consideration” is used in the
sense of a “quid pro quo,” compensation or reward having some value. Otherwise no
reduction can be made in respect thereof. There is nothing in the deed of trust that warrants
the view that the appellant disposed of the R100 000 to the trustees for a consideration of the
kind contemplated in s 58, and least of all, for a reciprocal obligation.’
[78] In this case, also, the provision for the payment of ‘maintenance’ in the
trust deed was a term of the trust contract. It was not a term of the disposal
contract. It is important to appreciate that in a transaction such as this there are
two contracts. The first is the trust agreement. It is concluded between the settlor
and the trustees and establishes the trust, usually setting out in detail the
mechanics of its governance. It may or may not in the same document record an

undertaking by the settlor to sell or donate something to the trust. Whether or
not it does, the disposal is a separate contract. It is concluded between the
disposer and the trustees on behalf of the trust once the trust has been
established.
[79] In the present case the disposal contract transferred R3.2 m in assets from
the disposer’s estate to the trust. Nothing was promised by the trust in return.
That makes the disposition, in the ordinary meaning of the term, gratuitous. It is
a disposition without value. And whether one declines to stipulate for anything
in return from a noble motive like disinterested benevolence or an ignoble one
seems to me to be irrelevant to the purposes sought to be achieved by the
income tax legislation. It is the depletion of the disposer’s estate, not the
goodness of his heart, that interests the Revenue. One of the factors of
production that produces wealth is capital. The fiscus relies for much of his
revenue on imposts on income produced by capital. It is a matter of concern to
him, therefore, that taxpayers deplete their asset bases by distributing their
capital resources to others without anything to replace them.  (Ovenstone v
Secretary for Inland Revenue 1980 (2) SA 721 (A) at 736C–E) Ogus (at 74C–D)
puts it well:

‘….the donations tax was introduced to make up for loss of revenue by way of income tax and
estate duty when certain types of donations are made. The mischief aimed at was the practice
by taxpayers of reducing their assets by making donations and thereby reducing their income
on which income tax is payable, reducing their assets on which estate duty would be payable
at their death, and spreading the assets and the income derived therefrom over several
taxpayers. The tax is consequently in terms levied in respect of the gratuitous disposal of
property.’
[80] The trustees of the Carom trust did not in terms of the trust deed
undertake any obligations to Welch. Their only obligations were to the
beneficiaries whom they were, within the constraints of the trust deed and
prudent fiduciary management of the estate, free to benefit to any extent they
thought appropriate. They were not bound to perform the obligations of the
Carom trust in discharge of any promise made by the trust to Welch.  As trustees
their only duty was to the trust and the beneficiaries.
[81] That, it seems to me, was the stand eventually taken by the
Commissioner. Having at first taken the view that the benefit anticipated by
Welch from the manner in which the trustees might be expected to perform their
duties in terms of the trust agreement amounted to ‘consideration’ in terms of s
58 of the Income Tax Act 58 of 1962 (the Act) the Commissioner offered to
deduct the estimated capitalized value of the maintenance obligations from the

disposition and to tax only the amount over and above that as a deemed
donation. The Commissioner in terms of that section may deem a disposal to be
a donation if in his opinion adequate consideration for the property has not been
given. He then changed his mind, taking the view which I think is the correct
one, that whatever benefit to Welch flowed from the performance of their duties
by the trustees could in law not amount to consideration for the disposition to
the trust.
[82] By establishing the Carom trust Welch certainly intended to receive some
benefits from the performance by the trustees of the trust contract. Since he was
one of the trustees he would presumably share in their remuneration. He was
also an income beneficiary so that once the trust’s obligations to the prime
beneficiaries had been discharged, he might hope to share in the trust income.
But, it is said, the greatest benefit he might hope to receive was that the trustees
would faithfully carry out their duties to the prime beneficiaries. All that seems
to me to be irrelevant: Whatever collateral benefit Welch might have hoped to
receive from the performance of another contract - not the contract of donation
but the trust agreement - would not qualify as consideration for the disposition.
Had it been the intention of the legislature in s 58 of the Act to permit as a
deduction from the value of a donation any advantage derived by a donor from

the administration of a trust it would undoubtedly have employed a word of
wider meaning than ‘consideration’. However, even the use of a term like
‘benefit’ (a term which is used in s 56 dealing with exemptions from donations
tax) might not have helped Welch. In ITC 1192 35 SATC 213 the Income Tax
Special Court dealt with a claim for an exemption under s 56(1)(d) of the Act.
The subsection then as now provides that donations tax is not payable in respect
of the value of any property which is disposed of under a donation in terms of
which the donee will not obtain any benefit until the death of the donor. The
question arose whether the remunerated appointment of the trustees could be
characterized as a ‘benefit’ under the subsection. If it could be, the exemption
would not be claimable. The special court was clearly alive to the distinction
between the donation and the trust agreement. At p 218 Trollip J said:
‘But the appointment as trustees here is not the kind of ‘benefit’ envisaged by s 56(1)(d); as
pointed out above that benefit must flow not from the contract but from the gratuitous
disposal of the property itself, the intention being to tax a donation and not, eg a contract for
the letting and hiring of services or work, however lucrative that might be; and, in any event,
as the trustees here receive no remuneration until after the donor’s death, they receive no
pecuniary advantage, profit or gain prior thereto. It clearly follows, too, that the exemption
from having to provide security is equally not a ‘benefit’ as was also contended for by Mr
Barnard’.

[83] The effect of the scheme incorporated in the divorce settlement was that
the wife renounced her claim for maintenance against Welch or his estate in
return for a claim against the trust, the property of which would ultimately go to
the two children. A child’s maintenance claim being predicated upon need, the
parties’ son, Tom, had no claim for maintenance against his father to the extent
that his father had, through the medium of the trust, made him financially
independent. The reality is that both the two prime income beneficiaries were to
be maintained by the trust at the expense of the discretionary beneficiaries and
the ultimate capital beneficiaries. The benefit to Welch was not only collateral, it
was also indirect and remote; it came about because by the terms of the trust
agreement, Welch had persuaded his wife to look elsewhere for her
rehabilitative maintenance and made his son financially independent. I am not
persuaded that this happy consequence flowing from the terms of the trust
agreement in any way determined the character of the disposition by Welch to
the trust.
[84] In my view the decision of the court a quo is not open to criticism. I
would dismiss the appeal with costs.

__________________

J H CONRADIE

JUDGE OF APPEAL

NUGENT JA)  Concurs

ZULMAN JA:
[85] I have read the judgments of my brothers Marais and Conradie JJA. I
agree with the former but regret that I am unable to agree with the latter. It is of
course so that more often than not the corpus of a trust is provided by way of a
loan from the settlor or acquired by way of credit granted by the settlor. But the
reason for that is obvious. Money lent or an asset purchased by the trust from the
settlor is not a donation at common law or within the meaning of the definition
of donation in the Income Tax Act 58 of 1962 (the Act). In those instances
where the corpus is lent or purchased rather than given there is usually no pre-
existing causa for the transaction which would rescue it from being classified in
law as a donation if the corpus were to be given rather than lent or purchased.
But where there is a pre-existing causa, such as a legal obligation owed to the
intended beneficiary, the need to lend rather than simply provide the means by
which the obligation is to be discharged, is entirely absent. The question which
falls to be answered in this particular case cannot be solved by adopting a priori

a point of departure which purports to answer in advance the very question
which remains to be considered. That point of departure is that all disposals of
property to a trust are donations unless they are loans to the trust or pursuant to
purchases by the trust.
[86] In my view the point that requires special emphasis in this case is that this
trust is not typical of the many inter vivos trusts which exist in South Africa.
Typically, the latter trusts give expression to a unilateral desire by the settlor to
sequester funds for the benefit of named beneficiaries to whom no legal
obligation to do so is owing. Here the position is quite different.
[87] The creation of this trust had its genesis in arms’ length negotiations in a
litigatory setting. Its creation was part of a compromise reached between the
parties and was made mandatory by the court order. In so far as it is suggested
that two contracts were entered into, one between the settlor and the trust and
the other between the trust and the beneficiaries, I believe that the two contracts
were so closely interrelated and interdependent that no useful purpose is served
by seeking to isolate them from one another.
[88] To equate this trust with trusts created in circumstances where no
antecedent obligations are owed by the settlor to the named beneficiaries is
neither possible nor appropriate.

[89] I do not believe that it is correct to generalise about the intended reach of
revenue legislation. Its reach must be determined by the language which the
legislature has chosen to express its will. We are dealing here with a particular
class of tax, namely, donations tax. One is not taxed because one spends one’s
money in the settlement of legal obligations. Nor is one taxed (value added tax
aside) if one chooses to dissipate one’s money or assets by profligate spending
on luxurious living, however much that may deprive the fiscus of potential tax,
be it estate duty, donations tax, or income tax. One is taxed only if one
gratuitously disposes of money or assets in the sense of either the common law
or the definition of donation in the Act. That is not what happened here.
[90] Money expended stante matrimonio by Mr Welch to maintain his wife
and minor child could obviously not be characterised as donations attracting
liability for donations tax. I see no justification for saying that funds provided by
him (or his estate) to enable those obligations to be met after dissolution of the
marriage mutate into donations attracting liability.
[91] I share the view of Marais JA that the true explanation for the decision
reached in the case of Ogus is that set out in para [52] of his judgment. To the
extent that there are dicta in the judgment that are incompatible with what
Marais JA or I have said, I consider them, with respect, to be unsound.

_________________________

R H ZULMAN

JUDGE OF APPEAL

MARAIS JA)
CLOETE JA)   CONCUR