SARS penalties for dormant trusts: What trustees need to know – By Eleanor Becker (Citywire)

SARS deferred the imposition of administrative non-compliance penalties for trusts, originally scheduled to start earlier this year, until 4 May 2026 to give trustees additional time to regularise their affairs, according to a Hobbs Sinclair Legacy statement.

‘Many trustees assume that once a trust stops holding assets or conducting transactions, its obligations simply fall away,’ said Stacy Wallace, managing director of Hobbs Sinclair Legacy. ‘In reality, a trust can remain active on SARS’ records long after it has ceased operating in any meaningful sense.’

SARS has emphasised that trusts which no longer serve a purpose must still follow a formal process before they can be removed from the tax system, Wallace said. This includes submitting all outstanding tax returns, settling any tax liabilities and providing supporting documentation confirming the trust’s termination.

What triggers an administrative penalty?

‘All trusts are treated the same by SARS; there is no distinction between so-called dormant trusts and active trusts,’ van der Spuy told Citywire South Africa.

‘All trusts are required to register as taxpayers with SARS and submit tax returns. Even if a trust is so-called “dormant”, SARS may penalise trustees for failing to submit trust tax returns…’

She said that following its focus on individuals and companies, the revenue service has now set its eyes on trusts, initially penalising non-submission of 2024 and/or 2025 tax returns. However, the net could later be cast further into the past.

‘SARS began issuing final demands to trusts with outstanding 2024 and 2025 returns as of 9 February 2026, marking the first wave of automated penalties. It’s anticipated that SARS will follow the same strategy to roll this out… as it did for individuals and companies,’ van der Spuy said.

She explained that penalty regulations for individuals were phased in from November 2009, initially applying to those with two or more overdue returns from the 2007 tax year onwards. From 1 December 2021 penalties were imposed for one or more outstanding returns.

SARS started applying administrative penalties for companies’ outstanding income tax returns for years ending in or after 2009. From 1 December 2021, returns from 2009 onwards had to be submitted by 1 December 2022 to avoid penalties.

For trusts, SARS will first issue a notice, allowing trustees 21 days to rectify non-compliance. ‘The penalty amount will be automatically imposed for up to 36 months, or until the trustees rectify the non-compliance. If Sars is unable to communicate the penalty assessment, the period may be extended to 47 months,’ van der Spuy said.

Trustee responsibility 

‘Although South African tax law recognises a trust as a separate taxpayer, the primary responsibility for compliance rests with the trustees collectively, who act as the trust’s representative taxpayers,’ van der Spuy said.

‘If a representative taxpayer fails to settle tax obligations, SARS can hold them liable in both their official and personal capacities.’

SARS will impose personal liability under Section 155 of the Tax Administration Act under certain circumstances, she said. This includes if the trustees pay themselves, beneficiaries, or other creditors rather than paying SARS debt, leaving the trust indebted to SARS; or if they engaged in fraudulent activities, such as dissipating trust assets (moving or hiding funds) to avoid paying SARS.

‘Even if trustees use the services of a tax practitioner, accountant, or administrator, they remain legally liable for the trust’s tax obligations,’ van der Spuy said.

New trustees of old non-compliant trusts can breathe easily however. If the original trustees have died, emigrated, resigned, or cannot be traced, ‘as long as the remaining trustees have not participated in the activities envisaged under Section 155 discussed above, SARS won’t be able to pursue the new trustees’, she said.

However, ‘The current trustees have to prove to SARS that they’re attempting to rectify the situation and should be mindful not to participate in activities envisaged under Section 155.’

Deregistering with the Master

The Master of the High Court specified the procedure to deregister a trust in a March 2017 directive.

Van der Spuy explained the process.

First, if the trust was registered as a taxpayer, all outstanding tax returns should be submitted. The trust must be physically deregistered with the Master and then SARS.

The Master needs several documents from the trustees.

Firstly, a resolution with the reasons for the trust’s termination, or, where applicable, the original signed resolution terminating the trust. The resolution must state whether the trust was dormant or active and if a bank account was opened in the name of the trust and, if so, that it’s been closed.

Secondly, it needs the original letters of authority. If they can’t be found, a trustee must submit an original affidavit stating as such and that the trustees will submit the original Letters of Authority to the Master if ever found.

Thirdly, bank statements reflecting a nil balance, the final bank statements, or a letter from the bank confirming that the account has been closed. If the trust didn’t have a bank account, trustees must confirm this in writing.

Lastly, proof that the beneficiaries have received their benefits; and an affidavit from the trustees confirming the trust has been divested of all assets.

The Master can then close the file and confirm the file has been closed in writing, she said.

SARS deregistration

After deregistering the trust with the Master its main trustee or representative taxpayer must submit several documents to SARS to deregister it for tax purposes.

This includes a copy of the documents submitted to the Master to terminate the trust, a certified copy of the letters of authority, a copy of the last annual financial statements (which must reflect zero assets and zero loan accounts or SARS might deny deregistration of the income tax number) and the IT34A assessment.

Sars also needs confirmation from the Master that the trust has been terminated and the file closed.

Take action

Wallace said trustees should review all trusts under their administration to determine whether they remain active, confirm all tax returns have been submitted and ensure SARS’ records accurately reflect each trust’s current status.

‘Once penalties begin accumulating, the cost of inaction can quickly outweigh the cost of resolving the issue properly,’ she said.