SARS is zooming its focus in on Trusts that are not Tax Compliant

The South African Revenue Service (SARS) is going to be slamming down the gavel on Trusts that are not tax compliant.

SARS began its focus on Trust tax compliance in September last year when it issued a press statement stating that “(SARS) has conducted a detailed current state analysis of tax compliance by Trusts and their beneficiaries to determine whether all Trusts and their Beneficiaries are registered with SARS for tax purposes and whether all Trusts and their Beneficiaries have filed their annual Income Tax Returns. If so, whether such returns fully and accurately reflect their actual tax status and their payment obligations have been fully met”.

The government department added, “SARS has identified a significant number of beneficiaries of Trusts who have received distributions but have not submitted income tax returns in line with their legal obligation as per the annual public notice under section 25 of the Tax Administration Act 23 of 2011”.

The income, especially from Capital Gains Tax (CGT), is significant in the release of the 15th Annual Edition of Tax Statistics issued on 3 March 2023. In the media statement it detailed the income: “In 2021/22, CGT of R16.2 billion of which R7.7 billion was attributable to individuals and Trusts and R8.5 billion to companies. An aggregate of R189.3 billion has been raised since the introduction of CGT in October 2001, with R88.6 billion from individuals and trusts and R100.6 billion from companies”.

To ensure that a Trust is tax-compliant, various legal principles need to be adhered to. The first is the Conduit Principle where the income and capital gains distributed to beneficiaries must be reflected in their Personal Income Tax Return; essentially the normal tax paid on a Trustee or Beneficiary’s Income.

With SARS now moving to a data-driven automated system, they have stated that “Beneficiaries consist of companies, individuals and Trusts who must submit their outstanding Income Tax Returns immediately. Failure to remedy this non-compliance will lead to SARS invoking the provisions of the law, which may include actions such as raising estimated assessments, imposition of interest and penalties as well as civil and criminal sanctions”.

If the Trust’s financial statements are not done on time, and there are profits, it is likely that the Trust will have to leave the profits in the Trust and get taxed at 45%.

Trust taxes must become a priority and must also be treated with the same urgency as your Personal Income Tax.

The Wealth Masters Club and their team of experts are some of the best at what they do when it comes to utilising the incredible SARS benefits, such as the Conduit Principle. These principles can ONLY be handled by professionals, and failure to understand them in full will lead to severe fines and penalties. We urge you to contact us if you would like to have a consultation with one of our Wealth Officers to see how the benefits of the Conduit Principle and other tax-reduction methods can work for you in your personal and business accounting.

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