SARS is closing in on trusts in South Africa

 ·23 May 2023

The South African Revenue Service (SARS) has made two significant changes in the last six months to those who have or benefit from trusts.

Colleen Kaufmann and Micaela Paschini from Tax Consulting SA said that SARS is taking a deeper, more scrutinised look into the actual source of a person’s funds and disclosure requirements, especially for trusts.

SARS has come up with a new form of reporting called IT3(t) that encompasses the passing on of more information to the tax authority, and the more immediate change has taken its toll on beneficiaries of trusts transferring money offshore, the tax experts said.

SARS has also implemented a new Approval for International Transfer Application (AIT) process, which replaces the previous Emigration and Foreign Investment Allowance applications.

The new process has been introduced as part of SARS’s tax compliance drive, and to align the process with the South African Reserve Bank’s exchange control policy, said Tax Consulting SA.

The tax firm said that SARS had clarified its aim to ensure that all required tax payable has been accounted for and, if required, address any non-compliance detected through verification and/or an audit.

On 1 April, President Cyril Ramaphosa signed the General Laws (Anti Money-Laundering and Combating Terrorism Financing) Amendment Act which changed provisions of the Trust Property Control Act and defined ‘beneficial ownership’ in line with international standards and added more tax obligations to them.

Under the new amendments, trust beneficiaries are considered beneficial owners if they can receive income, distributions or other benefits from the trust’s assets.

Crackdown on trusts

When it comes to those taxpayers receiving distributions made to them from a trust, it is important that they have an air-tight paper trail, said Tax Consulting SA.

It added that: “taxpayers who are financially emigrating or transferring money abroad above their R1 million discretionary allowance per year must be prepared for an in-depth and extensive line of questioning if they are a beneficiary to any trust.”

The new AIT Application makes it so that SARS is no longer solely targeting high net-worth individuals but everyone.

SARS has confirmed that it is of the view that taxpayers applying for more than the yearly R1 million single discretionary allowance are sophisticated taxpayers who should reasonably have records of the cost price of major assets they own.

Tax Consulting SA said that SARS has also gone on record that the following minimum questions will be asked to any beneficiary of a trust:

  • A copy of the trust deed
  • Resolutions from the Trustees of the trust authorising the distribution to the beneficiary
  • Details of the source of funds distributed by the trust to the beneficiary
  • Bank statements of the beneficiary, issued on the date of the application, reflecting the distribution from the trust
  • Bank statements of the trust reflecting the distribution to the beneficiary, not older than a month
  • The trust’s latest portfolio statement (not older than a month), which must also include the number of shares and current market value
  • The latest annual financial statements of the trust

The tax experts added that there are also additional questions on whether the trust is local or foreign, as well as questions on the main trustee, loans to the trust and any interest rate associated with it.

The AIT Application revolutionises tax compliance management in South Africa, and trust beneficiaries with assets intended for international transfers should ensure they possess the seven necessary source documents.

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