Amendments to the Trust Property Control Act place new obligations on trustees that could make trusts an administrative nightmare.
Law firm Cliffe Dekker Hofmeyr (CDH) said South Africa’s greylisting earlier this year necessitated urgent changes to the Trust Property Control Act 57 of 1988.
In February 2023, the Financial Action Task Force put the country on a list of states that have failed to meet international standards on money laundering and terrorism financing.
South Africa must introduce and enforce several regulatory changes to be removed from the list.
To get off the list, the country amended sections 1, 6, 8, 10, 11, 19, and 20 of the Trust Property Control Act and the regulations thereto. These amendments came into effect on 1 April 2023.
Sections 10, 11, and 19 place obligations on trustees in particular. These obligations rest on the shoulders of all trustees, regardless of the nature or value of their trusts.
This includes family and family business trusts, commercial and business trusts, and public benefit organisation trusts.
There are three new obligations for trustees:
- Collect, record and maintain details of beneficial ownership of the trust
- Lodge such information with the Master of the High Court using an electronic register
- Collect, record and maintain details pertaining to accountable institutions with which trustees have dealings
In terms of section 19(2), if trustees do not comply with these obligations, they will be liable for
- A fine not exceeding R10 million;
- Imprisonment for a period not exceeding five years; or
- Both such a fine and imprisonment
Stacy Rouchos, Bannister Trust managing director, said the requirement to disclose beneficial owners is not new.
However, the new regulations require that the information be submitted in a specific format and consistently updated whenever there is a change in the personal details of the beneficial owners.
“While it is important to increase transparency and prevent financial offences, trustees and trust service providers may struggle to comply with the new regulations due to the inadequate time given to do so,” she said.
“However, the Master’s Office is taking a step in the right direction by improving the accuracy and timeliness of information being provided.”
In addition, penalties for non-compliance are levied against the board of trustees rather than the trust administration company.
Therefore, failure to comply with up-to-date information on beneficial owners can financially impact the trust.
This has already presented a massive problem to trustees.
The final regulations were gazetted after regular business hours on 31 March 2023 and came into effect a few hours later on 1 April 2023.
However, the electronic register was only available on the Master’s Integrated Case Management System Web Portal from 5 April 2023.
Therefore, trustees who had not submitted their registers after 31 March were in contravention of the Act – despite having had no mechanism through which to do so for four days.
“There is no provision for a phasing-in period, which means that all trustees in existing trusts who have not yet supplied their registers to the Master are already in breach of the regulations and, therefore, potentially subject to the penalty clause in section 19(2) of the Act,” Fiduciary Institute of South Africa CEO Louis van Vuren said on 6 April.
“Professional trustees cannot be expected to have their registers for all trusts ready within a few hours of gazetting the final text of the regulations.”
Trustees have been facing clamp-downs in South Africa, with the South African Revenue Service (SARS) also sharpening its focus on trusts at the end of last year.
In September 2022, SARS announced it was “embarking on a journey to modernise and improve service offerings to this segment of taxpayers [trustees]”. The revenue service said these improvements aim to make it “easy and simple” for trusts to comply with their legal obligations.
SARS’ announcement followed an analysis of trusts and their beneficiaries’ tax compliance.
This analysis led the revenue service to identify many trust beneficiaries who received distributions but did not submit income tax returns in line with their legal obligation under section 25 of the Tax Administration Act.
SARS warned that failure to remedy this non-compliance would force it to invoke “the provisions of the law which may include raising estimated assessments, imposition of interest and penalties as well as civil and criminal sanctions”.
An online registration system allowing trusts to register with SARS and declare their beneficial owners was launched in September and was updated in February.
SARS also requires third-party declarations of taxpayer activity from banks, financial institutions, medical aid schemes, attorneys, and estate agents to ensure accurate information is prepopulated on annual income tax returns.
However, SARS will also introduce a third-party data reporting system for trustees, with the first reporting date planned for September 2023.
There are two objectives for this.
- To use the third-party data to auto-assess individuals who receive trust distributions as beneficiaries. In other words, SARS wants to determine the amount of tax these individuals should pay without requiring them to complete a tax return.
- To potentially help employers determine the amount of employee tax that should be withheld from trust distributions that are paid to individuals who are also employees.
Some stakeholders are concerned that this process will place a significant administrative burden and financial cost on the representative taxpayer of the trust, which is usually the main trustee.