Recent communication by the South African Revenue Service (Sars) indicates an increased focus on how high-wealth individuals fund trusts, companies, and similar structures, particularly where these arrangements may give rise to donations tax exposure. 

A notice issued by Sars’ High Wealth Individual (HWI) Unit, dated 27 March 2026, could point to a more stringent compliance approach to donations and donations tax. While the notice forms part of its ongoing engagement with HWI taxpayers and largely restates existing principles, it highlights specific areas that Sars is likely to review more closely in practice.

Considering this, taxpayers should proactively reassess how their structures have been funded, particularly where loan accounts, valuations or historic transactions are involved, to ensure these arrangements can withstand Sars scrutiny.

Funding Structures: Where Risk Arises

Wealthy taxpayers often rely on trusts, companies, and similar structures to preserve and grow capital. In many cases, value is introduced into structures through direct transfers, the use of loan accounts, or transactions concluded at values that may not reflect market conditions. It is also not uncommon for companies to be used as intermediaries in these arrangements. 

Depending on the specific facts, these transactions may fall within the definition of a “donation” in the Income Tax Act 58 of 1962, especially where there is a gratuitous element or where value is not fully accounted for.

In the notice, Sars states that the HWI Unit periodically share guidance to provide clarity and certainty of individuals’ tax obligations and support compliance. In this instance, the communication outlines key aspects of donations tax, including what counts as a donation, the applicable rates, when exemption applies, and who must pay the donations tax.

Section 7C and Other Areas Under the Spotlight

In practice, Section 7C of the Act has moved from a “known rule” to an active Sars enforcement and interpretation focal point, particularly within the HWI environment. The shift is less about new legislation and more about how broadly Sars is now applying and interrogating it.

Sars is therefore likely to pay close attention to arrangements involving interest-free or low-interest loans to trusts under Section 7C, which Sars may deem as a donation by the lender, as well as transactions concluded at values below market value and the use of companies to facilitate indirect donations. While these arrangements have historically formed part of legitimate structuring, they remain a primary area of audit focus.

Donations Tax: No Change, Greater Enforcement

From a technical perspective, the donations tax framework remains unchanged, but there is a clear indication that it will be applied more closely in practice. 

By way of a reminder, donations tax is levied at 20% on the cumulative value of donations up to R30-million and 25% thereafter. The primary liability rests with the donor, although the donee may become jointly liable where the tax is not settled. The annual exemption for individuals remains limited to R150 000, with a smaller exemption applicable to non-natural persons. 

Revisiting Existing Structures and Sars Audit

While the Sars notice itself is not binding, it forms part of the tax authority’s broader compliance drive and ongoing engagement with high-net-worth taxpayers. Based on past experience, this type of engagement is often followed by intensified audit activity. 

Against this backdrop, it would be prudent for taxpayers to revisit how their structures have been funded. Ensuring that these arrangements are properly documented, supported, and aligned with their underlying substance is increasingly important. This includes reassessing historic loan funding, validating market value assumptions, and ensuring that documentation supports the intended tax treatment.

Non-Compliance: Increasing Consequences

It is important to note that Sars’ access to third-party data, trust disclosures and cross-border reporting mechanisms places it in a position to identify inconsistencies in how these transactions are reported.

For high-net-worth taxpayers, the consequences of getting this wrong extend beyond tax inefficiency. It now includes audit exposure, penalties, and potential reputational risk. 

It is therefore important that existing arrangements are reviewed and supported by appropriate professional advice to ensure they remain compliant and defensible in the current environment.

Written by Lambert Roberts, Expatriate Tax Team Manager at Tax Consulting SA