The South African Revenue Service (SARS) has provided temporary relief to thousands of trustees across the country by withdrawing certain administrative penalties and final demand notices recently issued in respect of outstanding trust income tax returns (ITR12T).
Although many trustees may view this as a relief, it should not be mistaken for an exemption from their compliance obligations.
In fact, SARS has made it clear that this is a temporary pause in enforcement, creating a limited opportunity for trustees to get their affairs in order before the penalties are reimposed.
What did SARS announce?
In a communication issued to affected trusts, SARS confirmed that previously issued final demand notices relating to outstanding trust income tax returns should be disregarded and that administrative penalties imposed as a result of those notices would be reversed where applicable.
SARS further indicated that new final demand notices will be issued in due course and penalties will be imposed in future in accordance with applicable legislative requirements.
For trustees who have already received a penalty cancellation notice, this means that the previously imposed penalty has been effectively removed and the outstanding balance has been refunded.
Don't mistake relief for compliance
The rescinding of penalties does not mean that SARS has softened its position on trust compliance.
Trusts remain subject to annual income tax return filing requirements regardless of whether the trust has generated income, held property, conducted business activities, or been inactive during the year of assessment.
Over the past two years, SARS has substantially increased its focus on trusts, introducing enhanced beneficial ownership reporting, more detailed trust return disclosures and stricter compliance monitoring.
The message from SARS is clear that trusts are expected to be fully compliant.
a small window of opportunity
The return of the penalty gives trustees something that is increasingly rare in this tax environment – a second chance.
Trustees who currently have outstanding trust tax returns, unresolved registration issues, incomplete beneficial ownership records, or historical compliance deficiencies should actively utilize this period.
Once SARS issues revised final demands, trustees may once again face recurring administrative penalties for non-submission of returns. Depending on the circumstances, these penalties can add up over time and be significantly more costly than addressing compliance issues.
Therefore the prudent approach is not to wait for the next demand letter, but to use this relief to completely update the affairs of the Trust.
Trustees have personal responsibilities
Many trustees remain unaware that accepting appointment as a trustee imposes fiduciary duties that go beyond simply attending meetings or signing resolutions.
The trustees are responsible for ensuring that the trust complies with its legal and tax obligations, including:
- Annual submission of Trust Income Tax Return (ITR12T);
- accurate beneficial ownership reporting;
- Maintenance of trust records and supporting documentation;
- Compliance with the Trust Assets Control Act;
- Ensuring that tax matters are administered correctly and in a timely manner.
Failure to meet these responsibilities may expose trustees and trusts to unnecessary risks and costs.
Increasing complexity of trust compliance
Modern trust compliance has become increasingly technical.
Trustees should pay attention to the following issues:
- beneficial ownership reporting;
- vesting of income and capital gains;
- Implications of Section 7C Loan Account;
- Trust registration and deregistration requirements;
- tax residence considerations;
- capital gains tax events;
- SARS verification and audit procedures.
For many family trusts, these matters require expert knowledge that goes beyond normal tax return preparation.
Don't wait until SARS hits
The current penalty reversal provides trustees with a valuable opportunity to review the compliance status of their trust before SARS resumes enforcement action.
Whether your trust has outstanding returns, unresolved SARS registration matters, historical compliance gaps, or is facing uncertainty about its filing obligations, now is the time to act.
Trustees should consider appointing a qualified and experienced tax practitioner with specialist expertise in trusts and fiduciary taxation.
A trust compliance diagnostic can identify outstanding obligations, assess potential risks, and ensure that the trust is properly situated before SARS re-issues final demands and administrative penalties.
If you are unsure whether your trust is fully compliant, contact a trusted tax professional who is well-equipped in the trust environment. Early intervention is almost always less costly than dealing with fines, disputes and SARS enforcement action after the fact.
Written by Sydney Fletcher, Senior Manager of Trust and Deceased Estate Tax Compliance at Tax Consulting SA