On 30 June 2023, in a Gazetted public notice, the South African Revenue Service (Sars) formally expanded its third-party reporting standards to include trusts. Now, all South African trusts, and some foreign trusts, are required to submit returns containing third-party information as specified by Sars. 

Whilst this has been the norm for various other persons, including banks, financial institutions, and medical schemes, this new policy aligns with Sars’ strategic initiatives to drive compliance – specifically with trusts. This largely stems from the flood of legislative amendments made since the greylisting of South Africa and thus does not come as a surprise to fiduciary professionals.

Accordingly, it is imperative that trustees and beneficiaries exercise due diligence in familiarising themselves with these new provisions. By failing to observe these obligations, they may face the severe consequences of non-compliance.  

Sars is Lenient with More Time

The initial proposal was for implementation from September 2023. However, due to the tremendous burden that this places on trusts, Sars has extended the deadline to May 2024 

This means that trusts are afforded several extra months to plan, consolidate, and implement measures to comply with their new obligations. Trusts have no excuse for non-compliance now, as they have been duly informed of the looming deadline and leniency was granted with an extension. 

Under the Microscope

In line with these new provisions, Sars has specified that all trusts registered in South Africa must submit third-party returns. These annual returns must detail relevant taxpayer information, transactions and amounts involved. 

Further, non-resident trusts that are required to submit an annual income tax return to Sars, are also required to comply with the new Sars rules.  However, in the Gazette, Sars seems to have narrowed its definition of a “trust” to exclude Collective Investment Schemes and Employment Share Incentive Scheme Trusts.  

To comply, the specified trusts must now submit an IT3(t) form, including information on any amount vested in a beneficiary, whether income or capital. Further, Sars now requires the following information to be disclosed on the IT3(t) form – 

• Demographic information of the reporting trust;
• Demographic information of the trustees and beneficiaries;
• Taxable amounts distributed and vested in beneficiaries;
• Details of non-taxable income distributed; and 
• Trust financial flows.

With all this information on hand, Sars can now closely scrutinise beneficiaries, to further ensure their compliance.

Beneficiaries Beware…

Sars has the ability to cross-check and reference the information declared by a trust when reviewing a beneficiary’s tax return. Where a beneficiary fails to declare any distributions received or vested in them, Sars may raise an additional assessment to root out non-compliance. In fact, Sars has already started doing this in some cases. 

Sars Penalties is a Promise

Sars has further made it abundantly clear that an understatement penalty will also be imposed moving forward, where beneficiaries fail to make a full disclosure.

This falls in line with section 26(1) and section 234(2)(d) of the Tax Administration Act. These provisions empower Sars to collect third-party information from designated persons through the submission of third-party returns and to enforce criminal sanctions, such as a fine or imprisonment for up to two years, where they do not comply, respectively. 

Ultimately, these new requirements only place an additional lens on Sars’ scope to identify and eradicate non-compliance with respect to trusts.  It therefore remains prudent that beneficiaries are always aware of the distributions made to them, and that they exercise diligence in submitting their tax returns to Sars.  

Trusts of Importance Must Act Immediately

These new requirements take effect retrospectively from 1 March 2023 – the beginning of the 2024 tax year. According to the notice, trusts must submit their third-party returns by 31 May each year, detailing all required information in relation to a relevant year of assessment. Especially trusts with real value or importance must now already start preparing for this May 2024 deadline, and certain trust decisions must now already be taken before the August 2023 provisional deadline as well as the February 2024 yearend, which will impact this disclosure.

It is foreseen that this deadline will place trusts and trust administrators under enormous pressure to ensure that all their financial statements are finalised in time.

Despite the pressured timeline, the onus remains on trusts to comply with Sars’ new regulations. To ensure compliance and navigate Sars’ new third-party return requirements, it is best to seek the assistance of a qualified and experienced tax practitioner. 

Written by Micaela Paschini, Tax Attorney at Tax Consulting SA