SARS gives one group of taxpayers a break

The taxman has temporarily withdrawn administrative penalties and final demand notices for outstanding trust tax returns, giving trustees a limited opportunity to bring their trusts into compliance before penalties resume.

The South African Revenue Service (SARS) has provided welcome temporary relief to thousands of trustees across the country.

This comes as SARS has withdrawn certain administrative penalties and final demand notices that were recently issued in respect of outstanding Trust Income Tax Returns (ITR12T).

However, Tax Consulting South Africa’s Senior Manager for Trust and Deceased Estates Tax Compliance, Sidney Fletcher, warned that taxpayers should not view this as permanent relief.

“While many trustees may view this as a reprieve, it should not be mistaken for an exemption from their compliance obligations,” he said.

“In fact, SARS has made it clear that this is a temporary pause in enforcement, creating a limited opportunity for trustees to regularise their affairs before penalties are reintroduced.”

In communications issued to affected trusts, SARS confirmed that previously issued final demand notices relating to outstanding trust income tax returns should be disregarded.

The revenue service also noted 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 that future penalties will be imposed in accordance with the applicable legislative requirements.

For trustees who have already received penalty cancellation notices, this means that penalties previously assessed have been effectively removed and outstanding balances have been reversed.

“The cancellation of penalties does not mean that SARS has softened its position on trust compliance,” Fletcher explained.

“Trusts remain subject to annual income tax return filing requirements, regardless of whether the trust generated income, held assets, conducted business activities, or remained dormant during the year of assessment.”

Over the past two years, SARS has significantly increased its focus on trusts. It has introduced enhanced beneficial ownership reporting, more detailed trust return disclosures, and stricter compliance monitoring.

The message from the revenue service remains clear that trusts are expected to be fully compliant, Fletcher said.

A small window of opportunity

Fletcher explained that the withdrawal of penalties presents trustees with something that is becoming increasingly rare in the tax environment – a second chance.

“Trustees who currently have outstanding trust tax returns, unresolved registration issues, incomplete beneficial ownership records, or historic compliance deficiencies should use this period proactively,” he said.

“Once SARS issues revised final demands, trustees may once again face recurring administrative penalties for non-submission of returns.”

Depending on the circumstances, Fletcher said these penalties can accumulate over time and become significantly more costly than addressing the compliance issues now.

“The prudent approach is therefore not to wait for the next demand letter, but to use this reprieve to bring the trust’s affairs fully up to date,” he said.

Unfortunately, many trustees remain unaware that accepting appointment as a trustee carries fiduciary duties that extend beyond simply attending meetings or signing resolutions.

Fletcher stressed that trustees are responsible for ensuring that the trust complies with its legal and tax obligations, including:

• Annual submission of Trust Income Tax Returns (ITR12T)
• Accurate beneficial ownership reporting
• Maintenance of trust records and supporting documentation
• Compliance with the Trust Property Control Act
• Ensuring that tax affairs are administered correctly and timeously

“Failure to address these responsibilities can expose trustees and trusts to unnecessary risk and cost,” he cautioned.

Fletcher noted that modern trust compliance has become increasingly technical. Trustees must navigate issues such as:

• Beneficial ownership reporting
• Vesting of income and capital gains
• Section 7C loan account implications
• Trust registration and deregistration requirements
• Tax residency considerations
• Capital gains tax events
• SARS verification and audit processes

“For many family trusts, these matters require specialist knowledge that goes beyond ordinary tax return preparation,” he said.

Fletcher added that the current penalty reversal provides trustees with a valuable opportunity to review their trust’s compliance status before SARS resumes enforcement action.

“Whether your trust has outstanding returns, unresolved SARS registration matters, historic compliance gaps, or faces uncertainty regarding its filing obligations, now is the time to act,” he said.