SARS is coming after trusts in South Africa – and their beneficiaries

The South African Revenue Service (SARS) has expanded its third-party reporting standards to include trusts, says Micaela Paschini, tax attorney at Tax Consulting SA,

Now, all South African trusts, and some foreign trusts, are required to submit returns containing third-party information as specified by SARS.

Paschini said that the new policy aligns with SARS’s initiatives to improve compliance and stems from the flood of legislative amendments made since the greylisting.

As a result of these changes, it is imperative that trustees and beneficiaries exercise due diligence in familiarising themselves with these new provisions, said the tax attorney.

“By failing to observe these obligations, they may face the severe consequences of non-compliance,” she said.

SARS has extended the deadline for people to plan, consolidate and implement measures to comply with their new obligations. The revenue service has given taxpayers until May 2024.

“In line with these new provisions, SARS has specified that all trusts registered in South Africa must submit third-party returns. These annual returns must detail relevant taxpayer information, transactions and amounts involved,” said Paschini.

Additionally, non-resident trusts that are required to submit an annual income tax return to SARS, are also required to comply with the new SARS rules, she said.

Paschini said that the recent gazette from the taxman, it seems to have narrowed the definition of a ‘trust’ to exclude:

• Collective Investment Schemes
• Employment Share Incentive Scheme Trusts

To comply, the specified trusts must now submit an IT3(t) form, including information on any amount vested in a beneficiary, whether income or capital.

Further, SARS now requires the following information to be disclosed on the IT3(t) form –

• Demographic information of the reporting trust
• Demographic information of the trustees and beneficiaries
• Taxable amounts distributed and vested in beneficiaries
• Details of non-taxable income distributed
• Trust financial flows

With all this information on hand, SARS can now closely scrutinise beneficiaries to further ensure their compliance.

Beneficiaries of trusts must now be doubly sure that they comply with tax law.

The tax authority has the ability to cross-check and reference the information declared by a trust when reviewing a beneficiary’s tax return, said Paschini.

“Where a beneficiary fails to declare any distributions received or vested in them, SARS may raise an additional assessment to root out non-compliance. In fact, SARS has already started doing this in some cases,” she said.

“SARS has further made it abundantly clear that an understatement penalty will also be imposed moving forward, where beneficiaries fail to make a full disclosure.”

This aligns with section 26(1) and section 234(2)(d) of the Tax Administration Act, which authorizes SARS to gather third-party data through third-party returns and impose penalties, including fines or up to two years of imprisonment, for non-compliance, she added.

Deadline

These new requirements take effect retrospectively from 1 March 2023 – the beginning of the 2024 tax year.

Trusts must now submit third-party returns by 31 May each year, providing all necessary information related to the relevant assessment year.

Trusts of significant value or importance should begin preparations for the May 2024 deadline, and certain trust decisions must be made before the August 2023 provisional deadline and the February 2024 year-end, affecting the disclosure process, said the tax attorney.

With comment from Tax Consulting SA

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