SARS and trusts
The South African Revenue Services (SARS) has recently issued communications about the taxation status of trusts. These communications serve to confirm the terms outlined in the Income Tax Act, which stipulates that all trusts are (for tax purposes) ‘persons’ and are considered taxpayers in their own right. In this communication, SARS reminds taxpayers that trustees are responsible for registering all trusts managed in South Africa for their tax compliance matters, regardless of whether they are active or dormant.
The trustee or tax practitioner appointed to the trust in question should also file an annual tax return. This must be completed before the tax season deadline to avoid penalties.
The ins and outs of business trusts
Trusts can be particularly useful for businesses because they hold, protect, and ensure owner continuity. They benefit business owners by protecting assets against creditors and can be useful for effective future planning and tax liability management.
Businesses can also register in trust rather than with the CIPC if their main aim is to conduct business. This is best suited where a contractual agreement tasks trustees to manage the trust’s assets for the purpose of procuring a profit. Despite its benefits, however, this trust can hold certain drawbacks for your business’s primary goals, eliminating it as an alternative to business registration.
Whichever trust is in question, trustees should seek professional guidance to ensure that they are compliant with the complex rules regarding general governance and taxation.
Quick trust taxation facts
- The current trust tax rate is 45% levied on any retained income.
- Trusts do not qualify for the rebates outlined in Section 6 of the Income Tax Act.
- Tax obligations can be spread by allocating income and capital to several beneficiaries.
- Special trusts are currently taxed at a sliding scale of 18 – 45%.
- Certain special trusts quality for relief from Capital Gains Tax.
Submitting returns to SARS
All trusts need to be registered with SARS for their applicable taxes. The trust’s representative bears the onus of ensuring returns are filed by their respective deadlines. SARS has recently announced enhancements to its system to promote compliance, and trust representatives can now submit returns through the eFiling platform.
In theory, submitting returns for trusts sounds simple since all that needs to be submitted is an accurately completed ITR12T. Unfortunately, in reality, this is a somewhat complex 31-page document, best left to the experts.