By Staff Reporter
AFTER years of threatening non-compliant trusts with administrative penalties for the non- or late submission of annual income tax returns as required by law, the SA Revenue Service (Sars) appears to be ending its leniency in imposing these penalties.
Sidney Fletcher, Senior Manager for Trust Tax Compliance at Tax Consulting SA, said the industry expected Sars to start introducing administrative penalties for trusts that fail to submit their income tax returns retroactively from April 2025. Going forward, penalties will also apply for the non-submission of trust IT3(t) third-party data returns.
Presenting at a webinar about preparations for the looming trust tax filing deadline, Fletcher highlighted that the anticipated penalties for non-submission underscored the urgency for trusts to ensure their systems and information align with Sars’s requirements.
Sars will engage with recognised controlling bodies regarding administrative penalties, but it is difficult to see why the revenue service will continue to defer imposing penalties for much longer, Fletcher remarked.
Roxshanna du Toit from CPD Consortium, who hosted the webinar, emphasised that Sars placed the full responsibility for tax compliance squarely on trustees. With the deadline for trust tax submissions fast on Monday, trustees need to get their affairs in order.
Sars executive Advocate Sam Murugan indicated in a Sars presentation last November on trust compliance that the tax authority is observing a concerningly high level of non-compliance among trusts regarding registration, filing, declarations, and payment.
All trusts, operational or otherwise, must submit an annual tax return. This requirement has been in place for more than two decades. If you have fallen behind, ensure you catch up with your filings, a Sars official advised during this presentation.
All trusts must be registered with Sars, not just with the Master of the High Court. Data analysis, however, shows that it takes trusts an average of two and a half years after registering with the Master before registering with Sars.
Moreover, Murugan warned that trusts must file accurate tax returns on time, as delays or inaccuracies can lead to punitive measures, which can prove costly for trust taxpayers.
Fletcher noted that while Sars will not impose penalties for the current year of assessment regarding the non-submission of required trust IT3(t) returns, submission is strongly encouraged to establish a compliant track record.
According to du Toit, the topic of administrative penalties for non-compliant trusts is often “given little attention”. She expressed concern that many have not taken trust compliance as seriously as they should. For years, Sars has warned trusts about administrative penalties but has refrained from enforcing them. This inaction may have led trusts to underestimate the seriousness of these warnings. However, she anticipates that this is now expected to change.
Even if April 2025 is not “D-day” for trusts failing to submit annual tax returns, we are nearing the end of Sars’s grace period regarding administrative penalties. The significant reforms concerning trusts over the past two years should signal that Sars is serious, she remarked. “Trustees should have recognised the growing focus of Sars on the tax compliance of the trusts under their care. The formal implementation of administrative penalties is now a key step in Sars’s strategy to enhance trust taxpayer compliance.”
Fletcher also provided crucial advice for trusts that consider themselves dormant or passive and therefore have neglected to submit tax returns for many years. According to Sars, there is no such thing as a dormant trust if it possesses assets and liabilities, including interest-free loans and other funding methods. “A nil return does not equate to dormancy if any income, expenses, or liabilities exist.”
A passive trust must remain passive for the entire tax year to be considered as such, but even passive trusts must submit beneficial ownership details.
Sars aims to record all beneficial owners of registered trusts to ensure compliance with the Financial Action Task Force (FATF) requirements. The FATF has identified several action items that South Africa must address before it can exit the grey list. Countries on the grey list are subject to stricter monitoring of financial institutions to prevent financing terrorism and money laundering, which incurs additional costs for those institutions.
Du Toit reiterated Sars’s stringent requirements for trusts when submitting tax returns as part of expanded trust reporting. Sars now mandates the submission of minimum compulsory supporting documents alongside a trust tax return.