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As SARS continues to close the net on errant taxpayers, it has recently turned its attention to trusts.  Significant non-compliance has been identified between trusts and their beneficiaries as SARS is seeking to reconcile income distributed (by trusts), with income received (by beneficiaries).  This process is continually revealing that many trusts are not registered for income tax.

SARS extends reach with third party data

In previous blogs, we have discussed how SARS is increasingly using third party data to auto-populate income tax returns of individuals, based on such third-party information, and this reach is extending to its focus on trust income tax matters. 

There is potential now for SARS to generate effective tax rates for employers to apply to employees where trust distributions are made to such employees.  In such cases, SARS would require the employer (that is otherwise not connected in any manner to the trust) to withhold income tax on distributions received by its employee in his/her capacity as beneficiary of the trust in question. 

SARS is already in the process of automatically registering those individuals not currently registered for income tax, and who should be, based on third party data revealing trust distributions to those individuals. 

Interim online registration platform

SARS recognizes that its registration platform (for trusts specifically) is not functioning as it should and that this could be hampering those trusts wishing to be compliant, by registering for income tax.  As an interim measure, it has created an online registration platform for trusts to register accordingly.  We understand, however, that this platform is a temporary solution only.

Remedies for non-compliant trusts and/or beneficiaries

Where trusts and/or beneficiaries are non-compliant, there are remedies available through the Voluntary Disclosure Programme, which serves to assist taxpayers wishing to regularise their tax affairs.  Provided the requirements of the Programme are met, the taxpayer can “come clean” as it were and move forward without threat of penalties or criminal prosecution on historic undeclared taxable earnings.

Closing thoughts

Trusts are required to prepare annual financial statements and submit income tax returns, but many do not. The discipline of preparing regular management accounts and annual financial statements is one that is often ignored by trustees. These disciplines are pivotal in ensuring transparency in trust loan accounts, interest determinations and distributions to beneficiaries, and in providing a framework to ensure such beneficiary distributions are appropriately declared as income in the hands of the recipient parties.

The MMS Group Trust Services division specializes in financial administrative support for trusts and has the expertise to ensure the implementation of the appropriate reporting disciplines.  Alongside our tax team, we have the skills to ensure tax compliance for both trusts and beneficiaries.  Reach out to us for a confidential discussion on regularizing your trust and individual tax matters.