CHANGES TO THE INCOME TAX RETURNS FOR TRUSTS

The South African Revenue Service (‘SARS’) recently announced that Trusts must abide by additional stringent reporting obligations when filing annual returns. Naturally, the additional requirements impose further duties upon trustees to ensure compliance with the additional provisions.

SARS published the changes to the ITR12T tax return for trusts on their website, the changes are to take effect from 23 June 2023. SARS also issued a letter to the stakeholders outlining the changes. All Trusts are now liable to submit returns, and no Trusts are absolved from complying with the new changes to the Income Tax Returns.

The recent Government Gazette 3540 of 14 June 2023: Returns to be submitted by a person in terms of section 25 of the Act confirms that all resident trusts during the 2023 year of assessment must submit returns. GN 3540 further notes that income tax returns for trusts must be submitted electronically via eFiling, alternatively with the assistance of a SARS official at a branch.

SARS released a comprehensive guide that deals with income tax returns for trusts. The effective date of the guide is 14 July 2023.

SARS’ announcement informs trustees that they are obliged to register Trusts and file returns on an annual basis. SARS also reminded trustees of their obligation to comply with the requirements of the Trust Property Control Act 57 of 1988.

The following constitutes a summary of the changes to the Income Tax Returns.

The relationship between Trusts

The Income Tax Return now contains new questions to determine if local or foreign amounts are vested in a Trust as a beneficiary of another Trust.

The focus is accordingly on the relationship between trusts. The relationship between local and foreign trusts must also be declared to SARS.

The deeming donor provisions

The new additional questions aim to establish whether amounts are deemed to have accrued in terms of section 7 of the Income Tax Act 58 of 1962 (‘ITA’). The deeming provisions prescribe that the person to whom the income accrues is not necessarily deemed to bear the tax liability.

The deeming donor provisions under section 7 take preference over the ITA provisions in terms of which the beneficiaries or the trust itself is taxable. Donors are required to declare the amounts deemed to accrue to them under section 7 in their annual tax returns.

Where a spouse donates income-producing assets to a trust of which the other spouse is a beneficiary, and the sole or main purpose of the donation is to reduce the donor’s tax liability, a deemed donation taxable in the hands of the donor spouse under section 7(2) might occur.

A resident donor will be taxed where an amount has accrued to a non-resident beneficiary if that amount would have been taxable had the non-resident been a resident under section 7(8).

Where there is retained income in the trust which has not yet vested in a beneficiary, the donor will bear the tax consequences under section 7(5). This is especially applicable to discretionary trusts where trustees are yet to exercise their discretion.

Simplified Returns for Passive Trusts

A passive Trust will be subject to a simplified return. SARS held that this will be the case in instances where limited Trust activities are initiated during the year of assessment. The questions to determine whether a simplified return will be appropriate to the Trust are straightforward and subjective and merely focuses on whether the trust is a passive Trust and when such Trust became passive.

The requirements of a passive Trust are not dealt with. The activities that constitute ‘limited Trust activities’ are therefore open for interpretation. SARS introduced the term ‘passive Trust’ since a Trust can never be “dormant”.

SARS’ Guide also elaborates on the passive Trust information that will be required in terms of the return. The information includes whether there is a loan from a connected person to the trust and if the Trust is holding an asset and if so, how the trust was financed or funded.

Beneficial Ownership

The new return includes a declaration page where all the details of beneficial owners and others who may benefit from the Trust’s proceeds must be declared. The focus is on beneficiaries to ensure that

SARS complies with the Financial Action Task Force (‘FATF’) requirements. The FATF is a global money laundering and terrorist watchdog.

The declaration by Trusts will have roll-over effects on beneficiaries who need to ensure that vested income that accrued to them, is accounted for in their annual tax returns.

Supporting Documentation

Annual Financial Statements, Trust Deeds and resolutions or minutes of Trustee meetings must be submitted with the Trust’s Income Tax Return.

The Trust is obliged to submit a CTC IT10 declaration where it, together with any connected person, holds 10% of the participation rights in a controlled foreign company.

A Trust that is classified as a mining entity must submit Mining Schedules A and B.

The additional requirements that must be adhered to may be found in SARS’ Guide with effect from 14 July 2023.

It is imperative that Trustees ensure that Trusts are complies with the additional requirements, even though it will be an administrative burden. Donors and beneficiaries must further ensure that amounts vested in them, or which are deemed accruals are declared in their annual returns.

SARS may enforce its information-gathering powers in terms of Chapter 5 of the TAA to ensure that there is compliance with the new provisions.

Intellectual property disclaimer:
The contents of any article published by Pieterse Sellner Erasmus should not be construed as professional legal advice.