SARS currently requires 3rd party declarations of taxpayer activity from banks, financial institutions, medical aid schemes, attorneys, and estate agents. This declaration process is under discussion with affected stakeholders for extension to trust distributions, with a new income tax return that will be applicable to trusts. This disclosure shift is due to differences between trust vs beneficiary values in distributions made and received, respectively, which SARS aims to eliminate. Our trust services experts weigh in on the implications of this shift.
- Pressure on trustees and tax practitioners
Smaller family and investment trusts frequently do not have sophisticated financial management systems in place, which bring challenges of its own to the preparer of the trust financial statements, often frustrating and delaying the completion of the statements. Trusts are taxed at 45% on undistributed income, whereas once distributed to the trust beneficiaries, this income is taxed in the hands of the beneficiary.
Mandatory declarations by the tax practitioner to SARS will, in practical terms, mean that the trustees will need to make distribution decisions potentially earlier than usual to ensure that the practitioner has the requisite information timeously for its declarations to SARS.
- Monthly reporting
SARS is evaluating a monthly reporting protocol of distributions that have been declared or paid, with a final reconciliation report due at the end of the tax year. The concept is to emulate the existing EMP201 and 501 reconciliation protocols.
SARS is cognisant of the impact that this move will have on smaller trusts and their trustees and is considering a phased process to allow for the proper systems to be implemented to meet the new reporting requirements.
- Easier compliance
SARS is consciously attempting to make it easier for trusts to comply with their obligations to register for income tax and file returns timeously but has warned that it will invoke all measures legally available to enforce income tax compliance on trusts.
Trustees will need to ensure that management accounts for the trust are regularly compiled, with annual financial statements prepared and finalized timeously after the end of the financial year.
The MMS Group Trust Services division provides bespoke trust services to our clients to ensure the integrity and transparency of trust transactions. If your family or investment trust requires our support to meet the reporting requirements outlined above, feel free to contact our team.