The trust tax filing season is fast approaching, and South African taxpayers face new challenges as SARS introduces significant changes to enhance compliance. SARS is intensifying its efforts to verify and cross-check trust-related information, including details about beneficial owners and declared distributions. With some trusts having outstanding tax returns for several years, SARS has identified a staggering gap of close to R60 billion between the income and capital gains declared by beneficiaries and the distributions made by trusts. In response, SARS now requires all trusts to submit mandatory supporting documents, such as the trust deed, resolutions, and minutes of meetings, alongside their annual tax return.
Recently, on 23 June, SARS notified tax practitioners and trustees about changes to the Income Tax Return for Trusts (ITR12T), which now includes additional questions to be completed and accompanying mandatory supporting documents. According to the Income Tax Act, all trusts are required to submit an annual trust return. However, compliance in this regard has been low, with a submission rate as low as 20%. To address this issue, SARS has made it mandatory, effective from 23 June, for all trusts to provide the trust deed, resolutions, and minutes of meetings when filing the annual tax return.
The filing deadlines for trust tax returns depend on the type of trust:
- Non-provisional trusts, similar to individuals, have from 7 July to 24 October to submit their returns.
- Provisional trusts have from 7 July until 24 January of the following year to complete and submit their returns.
In the case of non-provisional trusts, all income and capital gains generated within the trust must either be attributed to the funders or distributed to the beneficiaries. This income should be reflected in the individual’s tax return. As for provisional trusts, any income and capital gains generated within the trust but not attributed to the funders or distributed to the beneficiaries are retained within the trust and should be reflected in the trust’s tax return. The first provisional payment by the trust is due by the end of August.
It must be emphasised that trust tax compliance has long been a focus for SARS. Out of the approximately 950,000 trusts registered with the Master of the High Court, only 600,000 are registered for tax purposes, resulting in a compliance rate for the submission of tax returns as low as 20%. Trustees or the appointed tax practitioner are responsible for filing the income tax return annually, while beneficiaries and donors must declare vested or attributed income and capital gains from the trust in the same year of assessment.
Experts warn that trustees who have not maintained up-to-date trust affairs will face difficulties in meeting the latest filing requirements. Retroactively preparing financial statements and resolutions will make compliance a challenging task. Transactions must be backed by resolutions, and reconciliations must ensure that distributions made and declared align accurately.
Notably, SARS is not solely targeting trusts but also focusing on historical wealth associated with companies, individuals, or trusts, aiming to address potential non-compliance. Trusts are considered low-hanging fruit for SARS. The current reporting requirements reflect what should have been in place from the beginning.
In addition to these changes, SARS has introduced extra questions in the trust tax return to determine whether any local or foreign amounts were vested in the trust as a beneficiary of another trust or deemed to have accrued in the current tax year. A simplified return was introduced for passive trusts with limited activities during the year. Taxpayers must ensure they select the appropriate return type and provide accurate information, including details of credit arrangements and “lay-bys.”