Tax warning for one group of South Africans

South Africans who have trusts with outstanding tax returns can face penalties from the South African Revenue Service (SARS) sooner rather than later.

Sidney Fletcher, Tax Consulting SA’s senior manager for trust tax compliance, warned that SARS is starting to take action against trusts.

After years of threatening non-compliant trusts with administrative penalties for non- or late submission of annual income tax returns, SARS’ leniency in imposing these penalties is ending.

From April 2025, she expects that SARS will start introducing retrospective administrative penalties for trusts for non-submission of their income tax returns.

The revenue service is also expected to impose penalties on trusts for non-submission of third-party data returns.

Fletcher said the expected penalties for non-submission underscore the urgency for trusts to ensure their systems and information align with SARS’ requirements.

“SARS will have discussions with recognised controlling bodies about administrative penalties, but it is difficult to see why the revenue service will be graceful and put off imposing penalties for much longer,” she said.

CPD Consortium’s Roxshanna du Toit said SARS lays the tax compliance responsibility fully at the feet of trustees. 

With the deadline for trust tax submissions only days away, on Monday, 20 January 2025, she said trustees should get their ducks in a row.

SARS Executive Advocate Sam Murugan stated in a SARS presentation last November that the tax authority sees a concerningly high level of non-compliance among trusts regarding registration, filing, declarations and payment.

All trusts, operational or not, must submit an annual tax return. This requirement has been in place for more than two decades. 

“If you have fallen behind, make sure you catch up with your filing,” a SARS official said during this presentation.

All trusts must be registered with SARS, not just the Master of the High Court. Data analysis, however, shows that trusts, on average, take two and a half years after registering with the Master before registering with SARS.

In addition, Murugan warned trusts to file accurate tax returns on time, as delays or inaccuracies can lead to punitive measures, which can be costly for trust taxpayers. 

Fletcher said SARS would not impose penalties for the current assessment year for non-submission of required trust returns, but submission is strongly encouraged to establish a compliant track record.

According to Du Toit, the topic of administrative penalties for non-compliant trusts is often “given little attention”.

“Many have not taken trust compliance as seriously as they should,” she said. “For years, SARS has warned trusts about administrative penalties but has refrained from enforcing them.” 

“This inaction may have led trusts to underestimate the seriousness of these warnings.  However, this is now expected to change.”

Even if April 2025 is not “D-day” for trusts that fail to submit annual tax returns, Du Toit said we are nearing the end of SARS’ grace pertaining to administrative penalties. 

“The massive trust reform over the past two years should tell us that SARS means business,” she said.  “Trustees should have recognised the growing focus of SARS on the tax compliance of the trusts under their care.” 

“The formal implementation of administrative penalties is now a key step in SARS’ strategy to enforce trust taxpayer compliance.”

Fletcher also gave a warning for trusts that see themselves as dormant or passive and, therefore, have not submitted trust tax returns for many years. 

In SARS’ view, there is no such thing as a dormant trust because it has assets and liabilities.

“A nil return does not equate to dormancy if any income, expenses or liabilities exist,” she warned.

“A passive trust must be passive for the entire tax year to be viewed as such, but even passive trusts must submit beneficial ownership details.”