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South Africa: Trust tax compliance obligations

4 September 2023
– 3 Minute Read
| Tax

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South African trusts have come under closer scrutiny in the last couple of months, both from a tax compliance perspective and also as a result of the new rules regarding the disclosure of beneficial ownership.

From a tax compliance perspective, the South African Revenue Service (SARS) has introduced various new tax compliance measures to improve tax collection, with trusts as one of the focus areas. This includes a SARS awareness campaign regarding the obligation of a resident or non-resident trust to register as a taxpayer and submit income tax returns. There is also a new obligation on trusts to submit so-called third-party returns to SARS, containing information regarding distributions to beneficiaries. 

Trust taxpayer registration

Resident trusts have for many years been obliged to submit income tax returns, irrespective of whether or not they derive any income. Non-resident trusts are only obliged to submit income tax returns if they:

  • carried on a trade through a South African permanent establishment;
  • derived income from a South African source; or
  • derived any capital gain or capital loss from the disposal of an asset to which the Eighth

Schedule to the Income Tax Act applies, namely if the asset disposed of is (an interest in) South African immovable property.

It is important not to interpret these requirements in isolation. For example, it is important to keep in mind that ‘income’ excludes exempt income. Accordingly, if a non-resident trust derives only exempt income (such as exempt interest) from a South African source, the trust would not be obliged to submit tax returns.

Apparently, many resident trusts did not submit income tax returns, arguing that they are dormant or do not carry on income-producing activities. SARS is now running an awareness campaign to ensure that all resident trusts submit returns. SARS can (and in fact from time to time does) criminally charge representative taxpayers for the failure to submit income tax returns.

Trust third party returns

In terms of General Notice No 3631, issued on 30 June 2023, trusts are now obliged to submit third-party returns to SARS. These returns (IT3(t)) must be submitted electronically via eFiling and must include information regarding all amounts vested in beneficiaries, including:

  • net income;
  • capital gains; and
  • capital amounts.

In this context, trusts’ refers to both resident trusts and non-resident trusts that are required to submit income tax returns but excludes collective investment schemes and employment share incentive scheme trusts.

The returns must be submitted once a year, by 31 May, in respect of the period 1 March to the end of February.  Although the Notice applies to periods commencing on or after 1 March 2023, it was published after the 31 May 2023 trust submission deadline. This implies that the first third-party returns for trusts will be due only by 31 May 2024.

For trusts with a February year-end, this leaves a relatively short period between their year-end and the due date for submission. It is thus important for trustees to be aware of this obligation when making and implementing decisions during the 2024 tax year. If a trust submitted a third-party return, the income tax return of a beneficiary who received a distribution from the trust, should be pre-populated with such information.