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Trust Year-end Change from 28 February
- 03 September 2024
- Tax Administration
- The Tax Faculty Tax Specialist
This article is based on tax law for the year ending 28 February 2025.
1. Background / Facts
A Group of companies’ structure includes a resident Inter Vivos Employment Incentive Trust. The trust has a 31 March financial year end and prepares its Annual Financial Statements (AFS) accordingly.
2. The Problem
Is it possible to submit the Trust Tax return based on the AFS for the year ending 31 March, or do new financial results need to be prepared for the year ending 28 February just for tax return purposes? Additionally, is there an option to change the trust's year-end from 28 February, similar to the flexibility allowed for companies?
The key issue is whether the Trust can submit its tax return using the AFS prepared for the year ending 31 March, or if it is necessary to prepare separate financial results for the year ending 28 February to meet tax requirements. Additionally, is any flexibility to change the Trust’s financial year-end from the default 28 February, similar to the flexibility allowed for companies.
3. Applicable Law
ITA 58 of 1962, Section 66(13A)
4. Application of the Law to the Facts
The year of assessment of a trust is the last day of February. Therefore, if the trust's Annual Financial Statements (AFS) are prepared for a year ending 31 March, they would typically need to be adjusted to align with the 28 February year-end for tax purposes.
Section 66(13A) allows the SARS Commissioner to permit the taxpayer to prepare accounts for a period ending on a mutually agreed date if they believe that a trust’s income cannot be easily accounted for during the 12-month period ending on the last day of February, , subject to any conditions specified. It is important to note that this exception is limited to income derived from a business or profession, and that the business or profession must be conducted within the trust itself, not by a separate legal entity.
The taxpayer may approach the Commissioner to request permission for the trust to use its AFS prepared in line with the company’s year ending 31 March 2024, to calculate the trust’s taxable income and complete the income tax return for the year of assessment ending 29 February 2024.
It is important to note that the trust’s year of assessment does not change, nor does its accounting period. With the Commissioner’s approval, the trust's AFS for the year ending 31 March can be used for the relevant year of assessment without the need to adjust the trust’s AFS.