Section 7C Trust Loan Account Calculator
Calculate the annual deemed donation and donations tax on interest-free or low-interest loans to South African trusts — and find the most cost-effective strategy
| Year | Deemed Donation | Annual Exemption Used | Donations Tax |
|---|---|---|---|
| Year 1 | R 155 000 | R 100 000 | R 11 000 |
| Year 2 | R 155 000 | R 100 000 | R 11 000 |
| Year 3 | R 155 000 | R 100 000 | R 11 000 |
Section 7C: Trust Loan Account Explained Deemed donation • Official rate • Strategies
How to Use This Calculator
The Section 7C Calculation tab calculates the annual deemed donation and resulting donations tax for a trust loan at zero, partial, or full official rate of interest. The Strategies tab compares available options to eliminate or reduce the Section 7C exposure, including charging the full official rate, repaying the loan, or converting to capital.
What is Section 7C of the Income Tax Act?
Section 7C was introduced with effect from 1 March 2017 to prevent the use of interest-free or low-interest loans to trusts as a mechanism to transfer wealth without paying donations tax. Under Section 7C:
- Any loan by a natural person (or connected person) to a trust at below the official rate is deemed to be a donation each year
- The deemed donation equals: Loan amount × (Official rate − Actual rate charged)
- The R100,000 annual donations tax exemption (Section 56) applies to the deemed donation
- Donations tax of 20% applies to the excess above R100,000
- The tax is payable by the lender (not the trust)
Worked Example — Thembeka's Trust Loan
Thembeka lent R2,000,000 interest-free to a family trust in 2021. The current official rate is 7.75%.
Annual deemed donation: R2,000,000 × 7.75% = R155 000
Less annual exemption: R100,000
Taxable deemed donation: R55 000
Donations tax at 20%: R11 000 per year
Solution: Thembeka should begin charging the full official rate of 7.75% on the outstanding loan — this eliminates the Section 7C exposure going forward. The trust can deduct the interest paid.
Frequently Asked Questions
What is the official rate of interest for Section 7C in South Africa?
The official rate of interest is set by SARS as the repo rate plus 1 percentage point. With the current repo rate at 6.75%, the official rate is 7.75%. This rate is updated whenever the SARB Monetary Policy Committee changes the repo rate, and SARS issues a notice confirming the new official rate. Lenders must charge at least this rate to avoid Section 7C exposure.
Does Section 7C apply to company-to-trust loans?
Section 7C originally applied only to natural persons. It was extended to include loans by companies controlled by connected persons — so a company in which you hold a majority interest lending to your trust also falls under Section 7C. This prevents the common workaround of routing the loan through a company. However, the loan must originate from a natural person or connected company; institutional loans are not affected.
What is the Section 7B exclusion for primary home loans?
Section 7B provides a limited exclusion: if the trust used the loan funds to acquire a primary residence that is occupied by the lender (not merely owned by the trust), and the lender uses it as their primary residence, the Section 7C deemed donation may be excluded. This is a narrow and contested exclusion — obtain specialist advice before relying on it.
Can I convert my trust loan into a capital contribution to avoid Section 7C?
Yes. Waiving (donating) the loan to the trust converts it from a loan to capital. This is a one-time donation taxable at 20% on the amount above R100,000. However, it permanently eliminates future Section 7C exposure. For a R2,000,000 loan, the once-off donations tax would be approximately R380,000 — compared to ongoing annual Section 7C tax. The trade-off depends on how long the loan was expected to remain outstanding.
How does Section 7C affect trust property planning in South Africa?
Section 7C significantly changed the economics of using interest-free trust loan accounts as an estate planning tool. Before 2017, many South Africans used zero-interest loans to trusts to transfer property into a trust while the loan remained in the estate (estate duty implications) — but interest-free meant no ongoing cost. Post-2017, the ongoing donations tax cost of a zero-rate loan must be weighed against the estate duty saving from holding assets in trust. Many families now prefer to charge the full official rate.