There has been plenty written on the South African Revenue Service’s (SARS) efforts to go after non-compliance of trusts. This year SARS started imposing recurring compliance penalties on certain trusts. 

Now, these penalties have been reversed and SARS very prudently advised that “You are encouraged to use this time to submit outstanding Trust Income Tax Returns”. As usual, there are two sides to any battle coming: SARS wants trusts to be fully compliant, just like normal taxpayers. There are many providers who want to resist this and though some of their reasons may be extremely valid, others are less valid. Like all battles, the victims are mostly the innocent parties and those who need the most help, are least advised.

Are You in Any Way Involved in a Trust? Or Have You Been Involved in a Trust, which is Now Closed?

There are very specific technical terms in relation to trust, for example the founder, settlor, trustees, beneficiaries, authorised representatives etc. You may be any one of these but let us just pick a simple general classification as someone with “involvement” in a trust. 

You may be a highly qualified professional with expert trust knowledge and decades of experience, a trust fund baby who has never needed to bother about all the technical terms, or simply just aware that you are part of a trust – but matters are “taken care of”, you have not received anything from the trust and you also do not want to rattle the family cage by asking. 

In the showdown between SARS and certain trusts that is coming, you may get caught on the wrong side of the firing line. Ignorance of the law is not an excuse, and the saying remains true that “You do not know what you do not know”.

How to Ensure You Do Not Have Any Risk

Trusts are often sensitive. They are about other people controlling other people’s money. So how do you manage your personal risk and ensure SARS do not come after you? 

Adopt the mindset: “I do not know what I do not know - so let me check.” Send the following message to the person(s) you think are responsible for the trust’s SARS compliance (this applies to an existing or even a closed trust) –

“Dear <<>>

The increased focus by SARS on trusts has been widely reported on in the media. I need to please check whether we are 100% sure that our trust’s tax compliance is up to date and there is no risk of non-compliance. SARS indicated there will be penalties imposed for non-compliance and obviously I do not want to take any risk in my personal name with SARS. There should also not be any penalties on the trust which can reduce the value of the trust. I understand this can even apply to closed trusts where the correct SARS process was not followed. 

Please assist with the following:

1. Are you the correct contact to give me this assurance, and, if not, please give guidance to whom I should reach out?
2. I see all trusts must be registered with SARS, even where they do not have taxable income – it will be good to know if we are on the same page?
3. Can you confirm the trust tax returns and SARS records are up to date?
4. Do we have a plan where the SARS records of the trust are not correct?
5. Is there anything about the trust which I should be reporting in my personal tax return?
6. Please confirm that in case of any SARS or Trust non-compliance, I cannot be directly or indirectly held responsible in my personal capacity? 

Apologies if this note creates unnecessary administration but having certainty that the trust does not give rise to any SARS reporting obligation or personal liability for me is important. 

Best regards

<<Your Name>>

Why Closed Trusts and Trusts with No Value Are Also a RISK

There are two very simple reasons:

1. Many trusts have been deregistered with the Master of the High Court, but they have not been SARS deregistered. There is no automatic connection between SARS and the Master. Whoever deregistered the trust, or was supposed to deregister the trust, must show proof of SARS deregistration.
2. Where a trust is still showing on the SARS system, eFiling will automatically impose recurring administrative penalties under the Tax Administration Act. It is critical that there is proper closure before the penalties kick-in. This is not a matter of debate or technical opinion – the SARS system is SARS’ truth. It is wise to know what SARS thinks and quickly fix any incorrect information. 

It is worth remembering that not having taxpayer information correctly updated with SARS is a criminal offense under section 234 of the Tax Administration Act. Rather be proactive and self-correct than beating your chest and declaring war against SARS when their system details are outdated and you do not have irrefutable proof that you did indeed inform SARS of the change.

Where you are uncertain, ask your SAIT Tax Practitioner to check the SARS system.

Written by Jerry Botha, Founder Tax Consulting South Africa