Nov 25, 2025 | Article
Trustees should move now to avoid administrative penalties.
While the South African Revenue Service (SARS) has gradually introduced administrative penalties for late or non-submission of tax returns, starting with individuals and later extending to companies, trustees have so far remained penalty-free. SARS has been strengthening its enforcement measures and plans to extend penalties to trusts, recognising that hundreds of thousands of trusts are non-compliant. The implementation is scheduled for early 2026, leaving limited time for non-compliant trusts. Although exact figures are unavailable, estimates suggest that up to two-thirds of all registered trusts with the Master of the High Court are not registered as taxpayers, despite the legal requirement for all trusts to register with SARS, even if labelled as “passive” or “dormant”. Of the one-third that are registered, only about 50% are believed to have submitted tax returns. That presents an opportunity for SARS.
How do the current penalties work?
SARS may impose administrative penalties if a taxpayer fails to comply in certain areas of their tax affairs, including Personal Income Tax (PIT), Corporate Income Tax (CIT), Pay As You Earn (PAYE), or value-added tax (VAT). An administrative penalty is a fine imposed under section 210 of the Tax Administration Act (TAA). The TAA details the different types of non-compliance subject to fixed-amount administrative penalties.
SARS introduced administrative penalties for PIT through legislative changes, mainly within the TAA and related amendments to the Income Tax Act. The
penalties were enforced under section 75B of the Income Tax Act, 1962, and later consolidated under Chapter 15 of the TAA, which became operational on 1 October 2012. The penalty regulations officially took effect on 1 January 2009 and were phased in, starting with outstanding returns from 23 November 2009. During the initial phase, penalties were applied only to individuals with two or more overdue tax returns for tax years from 2007 onwards. This approach supported the development of automated systems and provided non-compliant taxpayers a grace period to regularise their affairs.
With substantial regulatory tightening, from 1 December 2021, penalties could be imposed if an individual had one or more overdue returns for assessment years from 2007 onwards. This means that from 1 December 2022, individuals were required to submit all outstanding returns for the 2007 tax year and onwards to avoid penalties.
Regarding overdue CIT returns, SARS issued a media release on 29 November 2018 confirming it will soon begin imposing administrative non-compliance penalties, as outlined in Chapter 15 of the Tax Administration Act. SARS started applying administrative penalties for outstanding CIT returns for years of assessment ending in or after 2009. Initially, penalties were only levied if a company had two or more overdue returns for tax years from 2009 onwards.
Similar to individuals, from 1 December 2021, a penalty could be imposed if a company had one or more overdue returns for assessment years from 2009 onwards. This meant that from 1 December 2022, companies had to submit all required returns from the 2009 tax year onwards to avoid penalties. For CIT, penalties are applied if the company fails to submit an income tax return as required under the Income Tax Act, when SARS has issued a final demand referencing the public notice and requesting the overdue income tax return, and the company fails to submit the return within 21 business days of the final demand date.
SARS will keep penalising non-compliant taxpayers month after month until the outstanding returns are submitted or for a maximum of 35 months. Unpaid penalties will also attract interest each month they remain unpaid. If the admin penalty stays unpaid, SARS can also appoint an agent, such as a bank or employer, to collect the money on its behalf.
How will it work for trusts?
All trusts in South Africa are required to register for tax. For the 2025 tax year, the trust tax return (ITR12T) submission period runs from 20 September 2025 to the
final deadline of 19 January 2026. SARS plans to use the period from 20 January 2026 to the end of January 2026 to establish which registered trusts failed to submit income tax returns for assessment years ending February 2024 and 2025. Similar to companies, SARS will then issue a final demand to the trustees, referencing the public notice and requesting the submission of the overdue income tax returns. If the trustees fail to submit the returns within 21 business days of the final demand’s issue date, SARS will start penalising them.
SARS’s plan is to begin levying penalties from 1 March 2026 if both the 2024 and 2025 tax returns are not submitted. This is the plan for the first year’s implementation. However, it is anticipated that SARS may in future adopt the same process used with individuals and companies to penalise trustees even if only a single tax return remains outstanding from 2024 onwards.
No registered trust with the Master is exempt, regardless of whether trustees label it as a “dormant” or “passive” trust. SARS is also relying on details of registered trusts received from the Master and third-party data providers, such as banks, to identify unregistered trusts.
What are the penalties?
The administrative penalty for failing to submit a return involves fixed amounts based on a taxpayer’s taxable income. Penalties will range from R250 to R16 000, depending on the company’s assessed loss or taxable income, for each outstanding return, for each month the non-compliance persists.
Along with penalties for late submissions, SARS also applies penalties and interest for late payments and income understatements, which can range from 10% to 200% of the tax shortfall.
What should trustees do if many years’ returns are outstanding?
If the trustees have not yet registered the trust as a taxpayer with SARS, they must prioritise this. If a trust is registered only after 1 March 2026, trustees could face penalties. It is advisable for trustees to focus on the 2024 and 2025 tax returns to avoid immediate penalties. Afterwards, they should submit all outstanding tax returns to prevent future penalties.
In complex trusts, this may be difficult, as some tax rules—such as the attribution rules and the treatment of expenses under Section 25B of the Income Tax Act—are intricate and require cumulative and rollover calculations. Therefore, it might not be practical to start with the 2024 and 2025 tax returns if many other returns remain unsubmitted. As a word of caution, do not leave the trust’s tax returns until the last minute, as it has become a complicated process over the years, and trustees are required to submit resolutions for each transaction along with other supporting documents like minutes of meetings with the trust’s tax return. Do not backdate these documents, as you may be caught out by SARS.
(Source: Phia Van Der Spuy)
Feb 18, 2025 | Article
Justice Minister Mmamoloko Kubayi experienced first-hand some of the challenges faced in gaining access to court and other legal services, when, along with Deputy Minister Andries Nel and DG Doctor Mashabane, she visited the Johannesburg Master’s Office and the Kempton Park and Thembisa Magistrate’s Courts on Friday. On arrival at the Johannesburg Master’s office, they were met by frustrated people in a long queue outside, with no service being rendered as there was a power outage. TimesLIVE notes the Minister’s visit was aimed at enhancing access to justice, improving service delivery and addressing operational challenges through engagement with stakeholders, court officials and the public.
Some of the officials at the Master’s office complained that outages usually affect the water supply, which makes it difficult for them to work. Officials in one of the units told Kubayi their online system was extremely slow during the day which had prompted them to start work as early as 7am. Elsa Wloschowsky, an attorney, said the Minister’s visit gave her an opportunity to raise her frustration about the office. ’You drive, you reserve the morning to come to this office and the next thing you can’t get in the building because of the electricity,’ she said. She said she had suggested to the Minister that the administration of estates should be simplified and either solar panels or a generator installed. Kubayi said she would be reaching out to the Minister of Public Works about providing a backup generator.
Source:LegalBrief
Feb 18, 2025 | Article
Facing an appeal by a father against a lower court order that his two sons’ grandmother may have contact with them, Eastern Cape High Court (Makanda) Judge JW Eksteen remarked that ‘grandparents, like heroes, are as necessary to a child’s growth as vitamins.’ The Star reports that Eksteen further noted that the father did not share this sentiment. Following the death of the children’s mother, the maternal grandmother of the boys – aged nine and 13 – applied successfully to the Children’s Court to have contact with the children.
The father turned to the High Court to appeal this ruling. Eksteen explained that the Children’s Act calls for a child-centred approach. It does require the court to have regard to the personal relationship between the child and the parent, caregiver, or any other person relevant in the circumstances. He noted that the children had a good relationship with their grandmother prior to the death of their mother, but they have not had any meaningful contact in the past two years with her. The father, meanwhile, said he would allow supervised visits between the grandmother and the children. He suggested that it should take place at a ‘safe place’ like a police station.
But the court noted that the father has not laid any basis for fearing for the children’s safety with the grandmother. ‘The visitation of the boys with their grandmother in a police station strikes me as most inappropriate for their emotional and psychological well-being,’ the judge said. Eksteen ruled that the children may visit their grandmother and communicate with her, but he said that as they have not seen each other in a while and to avoid further trouble, this should be done in a structured manner.
Jun 24, 2024 | Article
Jun 1, 2024
MANY trustees are advised to distribute all trust income and capital gains to beneficiaries to escape the high tax rates in trusts. Even though a trust carries the highest income tax rate (a flat rate of 45%) and capital gains tax rate (a flat rate of 36%), when trust distributions are considered, cognisance is not taken of the ‘knock-on’ effect of potential further taxes that it may trigger.
Section 7C Donations Tax (actually a ‘prepayment’ of Estate Duty)
One of the major changes, to date, in trust tax law – in terms of combating the postponement or avoidance of Estate Duty – was the introduction of Section 7C of the Income Tax Act. This section taxes loans with interest below the variable official rate of interest (repo rate plus one percent – currently 9.25%) as a ‘deemed donation’. Donations Tax is payable on the interest that should have been charged on the loan.
This is taxed in the hands of the funder – the tax is 20% of the amount of the ‘donation’ if the aggregate of that amount and all other donations during a person’s lifetime (on or after March 1, 2018), excluding all exempt donations during the same period, is less than or equal to R30 million, and 25% of the amount of the ‘donation’ if the aggregate of that amount and all previous donations during a person’s lifetime (on or after March 1, 2018), excluding all exempt donations during the same period, exceeds R30m.
The rationale is that Donations Tax and Estate Duty are both charged on a gratuitous disposition (during your life and at death) at the same rates. The issue with the application of Donations Tax and Estate Duty is that no apportionment is allowed between the two tax brackets (20% or 25% explained above). Therefore, if the aggregate donations/estate is pushed above the R30m threshold, the entire donation/estate will be taxed at 25%, and no portion will be taxed at 20%.
The SA Revenue Service (Sars), through this provision, attacks the age-old method, whereby people transfer their assets to ‘their’ trusts on interest-free loan accounts, which never got repaid. The effect of this arrangement was that the person’s estate got ‘pegged’, and all the growth happened in the trust. No Estate Duty would therefore be paid on the growth of the asset upon a person’s death.
Section 7C now ensures that a person pays tax during their life to make up for this ‘loss’ to the fiscus by assuming a growth rate on trust assets. For example, if you sold a building to the trust for R3m on an interest-free loan account, you would pay R35 500 tax (R3m x 9.25% (current official rate of interest) – R100 000 (the annual Donations Tax exemption applicable to each South African resident individual)) x 20% (Donations Tax; if cumulative donations did not exceed R30m) annually, subject to changes in the variable official rate of interest and the cumulative amount of donations after March 1, 2018.
Distributions
A trust has unique tax treatment in that others may pay tax on income and capital gains generated in the trust rather than the trust itself. For example, the ‘Conduit Principle’ allows trustees to shift the tax burden from a trust to its beneficiaries, thereby paying tax at the individual’s marginal tax rate. In many cases, this may be lower than the trust’s tax rates listed above.
Therefore, one can legally use this mechanism as part of one’s tax planning, and achieve better tax efficiency. One can also apply the ‘income splitting’ (and capital gain splitting) principle to reduce the effective tax rate on income or capital gains generated in a trust, by distributing income and capital gains to multiple beneficiaries who pay tax at low rates.
This in many instances is the sole reason for trustees to move all the net income and capital gains generated in the trust during a year to beneficiaries. This is often done in such an ‘automatic’ fashion (just to save tax) that the compulsory application of the ‘attribution rules’ of the Income Tax Act, whereby all or some of the trust income and capital gains are to be attributed to the donor or funder for them to pay tax on income and capital gains generated as a result of their donation or soft funding, are overlooked.
Given Sars’ renewed focus on the ‘attribution’ rules, such behaviour may trigger penalties and interest on the incorrect treatment of trust income and capital gains. As a result of the introduction of Section 7C (discussed below), it is hard enough to get assets into a trust, so it may not be wise to ‘bleed’ growth out of a trust that was set up as a generational wealth transfer trust through making distributions just to save tax that year.
Following the example above, if the trustees sell the building after 10 years and make a capital gain of R5m, they may distribute it to a beneficiary to save tax of R900 000 {R5m x [36% (capital gains tax rate for a trust) – 18% (maximum capital gains tax rate for an individual)}, which seems a great incentive for trustees to distribute the amount to a beneficiary. This is exactly what Sars wants, as the amount will then fall within the estate of the beneficiary concerned, which will attract Estate Duty.
Estate Duty
Estate planners and trustees should be mindful that once distributions are made to beneficiaries, such amounts or assets have to be unconditionally vested in those beneficiaries to qualify for the more favourable tax treatment discussed above. Distributions could either be physically paid to beneficiaries or left in the trust as amounts payable to beneficiaries. In both instances, these amounts are included in and inflate beneficiaries’ estates. It may even push a beneficiary’s estate over the R30m mark, which triggers an additional 5% Estate Duty upon the person’s death, as explained above. Any future income and growth on these amounts (whether the amounts are physically paid out to the beneficiary concerned or retained in the trust for them) also vest in these beneficiaries’ hands, which will inflate their estates.
Potential double tax
After Section 7C was introduced as a ‘prepayment’ of Estate Duty on assumed growth, Sars has made no provision for any rebates on amounts already paid annually (since March 31, 2018) on the assumed growth explained above, against the calculated Estate Duty upon the deaths of beneficiaries who have received distributions during their lifetimes. Following the example above, applying the current rates, double taxation (Estate Duty and Section 7C Donations Tax) will be paid on R355 000 (10 years x R35 500).
Conclusion
When trustees consider distributions, detailed calculations should be performed to understand the total tax consequences resulting from distributions. Each beneficiary’s estate should also be taken into consideration, as one would want to avoid the extra 5% Donations Tax and/or Estate Duty as a result of any transaction or distribution.
If trustees blindly distribute trust income and capital gains to avoid paying higher taxes only for that year, they may trigger other unintended tax consequences.
When free cash is available after a trust asset has been sold, it may be wiser to rather repay a loan attracting Section 7C Donations Tax, as it will forever attract Section 7C Donations Tax, even if it is bequeathed to a family member after the death of the original funder.
Source: Phia van der Spuy
Mar 15, 2024 | Article
| SARS ‘s Trust and Tax Compliance webinar educates trustees |
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| On 29 February 2024, the South African Revenue Service (“SARS”) conducted a “Trust and Tax Compliance” webinar where they discussed the 4 pillars of compliance as they relate to trusts – registration, filing, declaration, and payment. In this webinar, they emphasised the focus of SARS on trusts which all have to register as taxpayers and who have to submit tax returns, including annual tax returns and potentially provisional tax returns.
Obligation to register as a taxpayer
Mention was made of the increase in trust registrations from 4 000 in 2021 to 7 500 in 2023. 47% of newly registered trusts in 2023 were timeously registered as taxpayers with SARS, which is an improvement. Even though there was an increase, still only about 380 000 trusts are registered with SARS to date, leaving an estimated 60% to 65% of trusts unregistered. SARS indicated that they would use third-party data to register existing, unregistered trusts.
This is a warning to trustees who have not yet registered trusts as taxpayers. SARS indicated that they would soon register trusts as taxpayers simultaneously with their registrations with the Master of the High Court, similar to new company registrations with the Companies and Intellectual Property Commission (“CIPC”).
Filing of trust tax returns
It was noted that there was a lag in the 2023 tax submissions compared to the previous year. Given the much more complicated trust tax return (which for a non-complicated trust can take up to 45 minutes to complete) as well as the magnitude of information to be provided with the tax return (such as “beneficial owner” information) and the requirement to upload additional documents with the trust tax return (including minutes of meetings, resolutions, and trust organogram), the delayed submission is understandable. Often tax practitioners do not have the information handy to submit proper tax returns. This may add a material additional cost to trusts to go back and forth in an attempt to comply.
It was highlighted that even though all trusts (including so-called ‘dormant trusts’) have to submit trust tax returns, SARS made provision for “passive trusts”, which were compared to dormant companies where no economic activity takes place, with zero assets and liabilities.
SARS uses the term “passive” instead of “dormant” as a trust can never be dormant, because the Master of the High Court, SARS, and the trust deed require ongoing compliance, such as bank accounts, meetings, tax returns, etc. “Passive trusts” therefore specifically exclude trusts that do not actively trade, such as trusts holding a private residence, a holiday home, or a passive investment, as SARS is after information in these trusts such as loans made by estate planners to trusts to acquire these assets. Therefore, even though so-called dormant trusts also have to submit annual tax returns, a shorter, less cumbersome version is provided.
The status of a trust as a potential provisional taxpayer was discussed. It was made clear that a trust is only obliged to submit provisional tax returns if it qualifies as a provisional taxpayer. No longer is any taxpayer automatically a provisional taxpayer. It therefore depends on whether the trust (as taxpayer of last resort) will be left at the end of February of any year with any taxable amounts. If so, then it qualifies as a provisional taxpayer and has to submit provisional tax returns – one in August and another in February.
As it may turn out that the trust may qualify as a provisional taxpayer in one year but not in the next, it may have consequences that few are aware of – it impacts the date on which the annual trust tax return is to be submitted. Therefore, if a trust is taxable on one cent by the end of February, it can submit its annual tax return the following January, together with other provisional taxpayers. If, however, after the application of the tax “attribution rules” to donors and funders and the making of distributions to beneficiaries, the trust is left with zero taxable amounts, then it does not qualify as a provisional taxpayer, and has to submit its annual tax return a couple of months earlier (around October of that year, 8 months after year-end), at the same time as other non-provisional taxpayers.
With all the time pressure that practitioners and trustees experience, it may make sense to leave even a small taxable amount in the trust to ‘buy time’ to submit the trust’s tax return. Note that it is in any event not wise for trustees to distribute all income and capital gains to beneficiaries just to pay no tax in the trust for that tax year. Often in this haste, tax practitioners and trustees forget to apply the tax “attribution rules” to donors and funders first.
If trustees (often guided by their accountants/tax practitioners) get it wrong and the trust qualified as a provisional taxpayer, the trust may be levied penalties and interest as a result of non-submission of provisional tax returns on time.
Alternatively, if trustees get it wrong and the trust did not qualify as a provisional taxpayer, the trust may be levied penalties and interest for the late submission of the trust’s annual tax return. This is a fine balancing act where (all) the trustees and the accountant/tax practitioner should work closely together, which is not the case in many instances.
Declarations/tax returns
It was emphasised that income distributions to non-resident beneficiaries are to be taxed in the trust from 1 March 2024. This should be taken into consideration in the determination of whether a trust qualifies as a provisional taxpayer for that tax year.
SARS emphasised their role as “secondary” data collector of “beneficial ownership” information. It was explained that SARS has better data collection capability than the Master of the High Court as they traditionally served as a “post box”. It was noted that it might change in the future, so hopefully, government can work towards a central repository of “beneficial owner” information where trustees update it once, and all authorities have access thereto. Currently, this results in a huge extra burden (and delay) as a duplication of information provision is expected, and what is worse, even though real-time/up-to-date information is required to be submitted to the Master of the High Court, tax practitioners have to reconcile back to who the “beneficial owners” were as at February in the year they submit the tax return for.
Trustees were reminded that SARS follows the definition of “beneficial owner” as instructed by the FATF. Different from the Master’s requirements, trustees must also submit information on “donors” to SARS. This is a tricky tax concept and includes anyone who made a physical donation to the trust in that tax year, as well as anyone who made a “deemed donation” such as a loan to the trust at non-arms-length terms.
The importance of keeping trust information in real-time or up to date to remain tax compliant was emphasised. As an example, it will be almost impossible to meet the deemed Donations Tax payment obligation (in terms of Section 7C), literally a month after (end of March each year) the trust’s tax year end (end of February each year). It was explained that payment of Donations Tax can be made through e-filing. However, currently, the “Declaration by donor/donee” (IT 144) form has to be submitted manually at a SARS branch, which causes huge frustration. It was noted that SARS is busy modernising that process so hopefully soon these declarations can be made through e-filing.
Fines for late submission of annual tax returns
SARS warned that administrative penalties for late submission of trust tax returns will be introduced from September 2024 (note that late submission penalties are already applied to other taxpayer types). Trustees were urged to bring their tax affairs up to date before September 2024 to avoid penalties (this includes the so-called “dormant trusts”).
Dispute resolution
Up to now, trusts have been excluded from the modernisation of the SARS dispute resolution mechanism and had to manually resolve disputes. This manual mechanism will be replaced with an automated case management system on e-filing (similar to other taxpayers who were already included in the modernization process) from April 2024.
Conclusion
It is advised that trustees should be much more closely involved in the accounting and tax for the trust on an ongoing basis, as they will be ultimately responsible for the trust’s taxes, penalties, and interest. Trustees’ lack of up-to-date information may also result in other taxpayers, such as “donors” and beneficiaries, getting into trouble with SARS. It is clear that trust administration and compliance have become more complex and demanding and the only way compliance can be achieved at all times, is to get into the discipline to keep all trust data up to date/real-time and for everybody involved with a trust to have access to and work on a central repository of information. |
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Source: Phia van der Spuy
Dec 8, 2023 | Article
To maintain a lavish lifestyle or not was the question the Gauteng High Court (Johannesburg) had to decide. A Pretoria News reports says a wife, who is divorcing her husband, wanted more than R127 000 maintenance a month for herself pending the divorce, as she said her shoes and clothes cost R20 000. Much of the maintenance the wife claims for herself is for entertainment and luxury. She is claiming relatively little for their two children. She argued that her husband had introduced her to a lavish lifestyle and she wanted to maintain that lifestyle.
Apart from her shoes and clothes expenses, the wife said she needed R10 000 and an additional
R35 000 pocket money a month for herself, as well as R20 000 a month for gifts. Regarding maintenance for their two children, she claimed just under R20 000 a month, per child.
The wife is also unhappy about the fact that her estranged husband had moved her and the children from their large home, where he paid R30 000 a month rent. She complained that she had to make do with a much smaller house, for which he paid R9 500 a month. She also wanted a R140 000 contribution towards her legal costs. The husband opposed the maintenance application as he is paying nearly every expense to maintain the household. He is also paying R15 500 a month for the maintenance of their minor children.
Acting Judge Kganki Phahlamohlaka cited case law in which it was said that a spouse was entitled to reasonable maintenance, pending divorce and dependent upon the marital standard of living of the parties, her actual and reasonable requirements and the capacity of her husband to meet such requirements.
According to the Pretoria News report, the judge pointed out that in that case, the wife had a job and earned R17 813 a month. The judge said it was unclear why additional maintenance was needed or why she could not survive on that salary. The judge added that it was common cause that the husband was depositing money in the wife’s bank account but the deposits do not equate to the amount she was claiming for maintenance, especially on entertainment and for a lavish lifestyle.
In light of the other expenses paid by the husband, the judge said the wife could make do on her own salary. ‘The applicant, as a gainfully employed individual, can survive on her income, pending divorce.’ The judge added that the wife had not been candid with the court in respect of her monthly expenses. ‘This is not supported by any evidence and therefore I find it unrealistic that the respondent was spending such a lot of money only for luxuries.’ The husband was ordered to continue paying the R15 500 a month for the maintenance of the children and the other expenses.
Source: LegaBrief
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