SARS delivered on its Budget 2021 promise to create the High Wealth Individuals (HWI) unit to specifically target income tax compliance of so-called “High Net Worth Individuals”. The unit was created in 2021 and gained further impetus with the appointment of experienced Chartered Accountant (SA), Ms Natasha Singh, to spearhead the strategic imperatives of the unit. The unit is directly focused on income tax compliance of taxpayers identified as of high net worth and is staffed by skilled individuals capable of understanding and dissecting complex tax structures that are generally associated with offshore interests of such taxpayers.
Whereas South African residents are correctly using SARS approved structures in their personal capacities or via offshore trusts and/or entities, the accounting for these investment structures, if not correctly done, gives rise to this income tax risk.
Examples of how these risks arise include:
- Donations Tax could trigger in the case of interest-free loans to offshore entities.
- Historically capitalized foreign trust fund reserves may be taxable in the hands of the South African beneficiaries upon receipt of distributions from the entities concerned, depending on the historical nature of the distributed reserves.
- South African residents could be liable for income tax on their participation in a CFC (Controlled Foreign Entity), depending on the types of shareholding and percentages held by South African residents and their related parties in offshore entities.
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