From a tax compliance perspective, SARS has conducted a detailed current state analysis of tax compliance by trusts and their beneficiaries to determine whether all trusts and their beneficiaries are registered with SARS for tax purposes and whether all trusts and their beneficiaries have filed their annual income tax returns. If so, whether such returns fully and accurately reflect their actual tax status and their payment obligations have been fully met.
IT3(t) Return
On 30 June 2023, SARS published a new notice (Notice) of returns of information to be submitted by third parties. In addition to existing listed persons such as banks, medical schemes and fund administrators, SARS now requires trusts to file third-party returns.
The Notice requires trusts to report on any amounts vested in a beneficiary, including net income, capital gains and capital amounts on their IT3(t) returns. The Notice provides that the IT3(t) for a trust will need to be submitted by 30 September of each year in which the trust tax year ends. The 2024 tax return is the first year in which this new requirement is effective. Therefore, trustees must ensure the IT3(t) is submitted by 30 September 2024.
Notably, the due date for IT3(b) and IT3(c) returns which report interest, dividends, and capital gains or losses to SARS is 31 May. Therefore, from a practical perspective this gives the trustees and their accountants only four months to complete the annual financial statements of the trust so the trustees can sign off on the IT3(t) returns.
The IT3(t) return requires the following information to be submitted to SARS:
-
demographic information of the reporting trust;
-
demographic information of trust persons/beneficiaries;
-
taxable amounts distributed or vested to beneficiaries;
-
details of non-taxable income distributed; and
-
trust financial flows.
SARS clearly seems intent on ensuring transparency between what is declared from trusts and on ensuring this data is pre-populated on the annual tax returns for beneficiaries.
Reporting requirements for trustees are becoming increasingly burdensome. Further, SARS will be closely monitoring whether trustees are complying with timing requirements, acquiring the correct information and submitting tax returns by the due dates.
Main Trustee appointments with SARS
SARS have implemented a new requirement that a Main Trustee must be registered with them in order to receive correspondence in relation to the trust. The Main Trustee appointment is an added security feature implemented by SARS to reduce fraud. Any SARS administrative changes which are to be preformed require an OTP Pin to be sent to the Main Trustee to authorise.
It has come to our attention that most trusts do not have a Main Trustee appointed on the SARS system which has resulted in compliance issues with SARS. Firstly, if a Main Trustee has not been registered the new IT3(t) return as discussed above cannot be requested via SARS efiling and secondly SARS efiling profiles cannot be transferred to new service providers.
Administrative Non-Compliance Penalties
On 29 February 2024, the SARS conducted a “Trust and Tax Compliance” webinar where they discussed the 4 pillars of compliance as they relate to trusts - registration, filing, declaration, and payment. In this webinar, they emphasised the focus of SARS on trusts which all have to register as taxpayers and who have to submit tax returns, including annual tax returns and potentially provisional tax returns.
SARS mentioned that if they compare the number of registered trusts with the Master of the High Court compared to the number of trusts registered with them it is estimated that 60% to 65% of trusts are not registered with SARS. SARS indicated that they would soon be using third-party data to register existing, unregistered trusts. This is a warning to trustees who have not yet registered trusts as taxpayers.
SARS stated that administrative penalties for late submission of trust tax returns will be introduced from September 2024 (note that late submission penalties are already applied to other taxpayer types e.g. individuals and companies). Trustees were urged to bring their tax affairs up to date before September 2024 to avoid penalties (this includes the so-called “dormant trusts”).
Administrative non-compliance penalties are levied in terms of section 211 of the Tax Administration Act (TAA) and are levied on a monthly basis per return outstanding. The minimum monthly penalty is R250 with the maximum being R16,000. The penalty levied is based on the taxable income of the taxpayer. Therefore, a dormant trust with nil taxable income will incur a penalty of R250 per month per return.