As a result of recent changes, the tax practitioner now has to submit a list of information to the South African Revenue Service (Sars) with the trust tax return. This includes the latest trust deed, resolutions, minutes of the trustee meetings and so forth. For example, if the trust deed requires the trust to meet at least every quarter, it will be expected of the tax practitioner to submit four sets of signed minutes of trustee meetings. Sars also asks some uncomfortable additional questions on the tax return which it labels “risk questions”.
With the tax practitioner often having no involvement in the management of the trust, this may leave them in a difficult position, without the required information to submit with the tax returns. The lack of information may result in tax returns being submitted late, with resultant penalties. That may also place unnecessary pressure on tax practitioners who are working under pressure during tax filing season. The fact that a trust is “taxpayer of last resort” (with other taxpayers such as funders/donors and beneficiaries potentially being taxed on trust income and capital gains and not the trust) resulted in tax practitioners historically leaving trusts for last (and often forgotten) in the queue of tax returns to be submitted for a client. This will no longer be possible, given Sars’s focus on trusts. For a while, Sars has warned that it would be focusing on trusts again. Sars held a webinar on July 29, 2021, with the title “Trust and Tax obligations”. On September 28, 2022, Sars issued a media release titled “Sars sharpens its focus on Trusts”.
As many are struggling with the new, involved trust tax return, Sars responded by giving further guidance. On August 31, 2023, Sars issued communication titled “Clarification of certain matters pertaining to the completion of the trust income tax return (ITR12t)”.
The matters that were highlighted:
- What format, information and supporting documents are required with reference to Beneficial Ownership?
- The nature of minutes: Are all minutes required to be submitted?
- Capturing persons’ details while acting in multiple capacities.
Beneficial Ownership
Sars’s aim is to record all beneficial owners of registered trusts in order to comply with the Financial Action Task Force requirements. Certain information must be submitted via e-filing, that is a copy of the Trust instrument, Letters of Authority and so on. Tax practitioners are struggling with what “additional documents” Sars requires.
Sars clarified that the documents may include, but are not necessarily limited to:
- *An organogram, illustrative, or schematic diagram depicting effective control and how the affairs of the Trust relate to other entities (interest in other entities, that is, ownership structure in the event of entity-layering).
- An Excel spreadsheet containing the above information.
- Or such other document, which will elaborate on Beneficial Ownership in relation to the Trust.
At least one document is to be submitted that relates to beneficial ownership information together with this year’s tax return. The tax return caters for only 20 beneficial owners. In the event there are more, the taxpayer must upload a supporting document that reflects the additional beneficial owner(s).
Nature of minutes
After concerns were raised that it was not necessary to submit all resolutions and minutes since that would be time-consuming and might not necessarily be relevant to Sars, Sars clarified that it required all minutes, excluding those dealing with internal trustee governance arrangements and/or administrative matters, to be submitted (that may include trustee amendments, trust amendments and so on.). Sars did not deal with which type of resolutions need not be submitted. It may be assumed that the same principle has to be applied to trustee resolutions. It appears that all transaction-related resolutions and minutes have to be submitted, regardless of the nature or size of the transaction. Remember, the court agreed that a trust is “run by resolution”, so be mindful that trustees do resolutions for all transactions in the trust.
Sars confirmed that the guidance in this regard gives preference to any other contradictory comments and/or communication that may have been communicated during any meeting and/or via e-mail.
Capturing persons’ details
Concerns were raised that the current tax return required the same information to be captured multiple times, such as when the same person might be a founder, trustee and/or beneficiary. Sars clarified that the process of multiple capturing would be required only in the first year of submission (for the 2023 tax year). The information would be pre-populated in future returns, with an edit function to allow for amendments to the beneficial ownership information.
It would be unfair to expect the tax practitioner to “fix” any non-compliance of the trust by the time they submit tax returns. It remains the responsibility of the board of trustees to have the necessary information ready and easily accessible for the tax practitioner to submit the trust’s tax return as well as the additional required information.
* Van der Spuy is a chartered accountant with a Master’s degree in tax and a registered fiduciary practitioner of South Africa, a chartered tax adviser, a trust and estate practitioner and the founder of Trusteeze®, the provider of a digital trust solution.
PERSONAL FINANCE