Crunch time for trust tax filing season

---

Crunch time for trust tax filing season

• 30 June 2023
• Amanda Visser

The South African Revenue Service (Sars) is enhancing its capabilities to check and cross-check the information on trusts, their beneficial owners, and distributions made and declared.

The tax authority recently (23 June) alerted tax practitioners and trustees of changes to the Income Tax Return for Trusts (ITR12T), which include additional questions to be completed and mandatory supporting documents that must from now on accompany the return.

In terms of the Income Tax Act all trusts are required to submit a trust return annually. However, compliance in this regard has been lagging, with some trusts having outstanding tax returns dating back years. Sars has identified a gap of close to R60 billion between income and capital gains declared by beneficiaries and distributions made by trusts.

Read/listen: Everything you need to know when setting up a trust

From 23 June it has become mandatory for all trusts to submit the trust deed, all resolutions, and minutes of meetings when filing the annual tax return.

Deadlines

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 next year to complete and submit their returns.

• Non-provisional trust: All income and capital gains generated in the trust have either been attributed to the funders or have been distributed to the beneficiaries (income must be reflected in the individual’s tax return).
• Provisional trust: Income and capital gains generated in the trust and not attributed to the funders or distributed to beneficiaries are retained within the trust and are reflected in the trust’s tax return. The first provisional payment by the trust is due by the end of August.

Low compliance

Phia van der Spuy, founder of Trusteeze, says trust tax compliance has been on Sars’s radar for many years.

There are around 950 000 trusts registered with the Master of the High Court. However, only 600 000 are registered for tax purposes. The compliance rate for the submission of tax returns is as low as 20%, she says.

Trustees or the appointed tax practitioner must file an income tax return on an annual basis.

Beneficiaries and donors must declare vested or attributed income and capital gains from the trust in the same year of assessment.

Van der Spuy says it is not going to be easy for trustees who have not been keeping trust affairs up to date to file returns according to the latest requirements.

Read: Sloppy trust administration days are coming to an end

“People continue to do transactions like mad and then they do the financial statements and resolutions retrospectively. Compliance is going to be a nightmare. Transactions must be backed by resolutions and the reconciliations must ensure that distributions made and declared match,” Van der Spuy says.

She adds that it is not only trusts that are being targeted. Historical wealth – whether associated with companies, individuals or trusts – is being targeted for potential non-compliance. Trusts are particularly low-hanging fruit for Sars.

“What is happening [in terms of reporting requirements] is what should have been done in the first place,” she adds.

Additional questions

The changes introduced by Sars include additional questions to determine if any local or foreign amounts were vested in the trust as a beneficiary of another trust or deemed to have accrued in this tax year.

Sars has also introduced a simplified return for passive trusts where limited activities occurred during the year.

Taxpayers must make sure they select the correct type of return to complete.

There is also a new field for credit arrangements and “lay-bys”.

There has been a lot of emphasis on the declaration of beneficial ownership in trusts – mainly because of the concerns around terrorism financing and money laundering.

South Africa had been forced to tighten its financial legislation to combat these crimes. This follows the threat and ultimate greylisting by the global money laundering and terrorist financing watchdog, the Financial Action Task Force.

Read:

South Africa greylisted

SA’s greylisting: The journey to claw back credibility

Easy access to data

All beneficial owners and “those who may gain financially” from the proceeds of the trust must be recorded. Tax practitioners and trustees must take note that updated beneficial ownership information is also to be provided to the Master of the High Court on an ongoing basis.

Sars has access to the Master’s portal and will pick up on any mismatches in the tax return to what is submitted to the Master.

Trustees, appointed accountants, and tax practitioners who submit inaccurate financial statements and tax returns may be held personally accountable.

Read: Sars focuses on trusts, particularly those pushing the envelope

“There are now many ways for Sars to check and cross-check that the information supplied to it by third parties, trustees or tax practitioners ties up,” says Van der Spuy.

Keep up to date

She advises trustees and tax professionals to keep trust information (trust deed, resolutions, minutes of meetings and financial statements) up to date.

The penalties for getting it wrong are quite harsh and Sars may hold the trustee as the representative personally liable for non-compliance.

“Make sure you have a mandate, make sure you have up to date information and make sure you do your own checking and cross-checking to make sure everything is aligned.”

Read: Tax non-compliance to be ‘hard and costly’: Sars wealth unit director

Source: Moneyweb

 

 

 

0 COMMENTS

LEAVE A COMMENT