THE South African Revenue Service (Sars) presented a webinar on July 29, 2021, titled Trust and Tax Obligations, in which it made it clear that the focus is on tax compliance for trusts.
With only around 11% of trusts in tax compliance in South Africa, Sars will have a field day implementing its nine strategic goals, leaving trusts at great risk due to non-compliance.
This, in turn, may lead to the trustees being held personally liable by the beneficiaries for failure to meet their fiduciary obligations.
Section 1 of the Income Tax Act defines a trust as “any trust fund consisting of cash or other assets which are administered and controlled by a person acting in a fiduciary capacity, when such person is appointed. by virtue of a trust deed or by agreement or by virtue of the will of a deceased person ”.
This definition was inserted following the 1993 decision in CIR v Friedman, in which it was held that under common law a trust is not a “person”. A fiduciary duty is an onerous legal obligation (a duty of loyalty and diligence), of a person managing property or money belonging to another person, to act in such person’s best interest. The following strategic goals were discussed, which Trustees should take to heart and put their affairs in order (urgently) to avoid surprise attacks by Sars, which could cost the Trusts – and potentially the Trustees – dearly financially. .
Objective 1 – Clarity and certainty
Sars will seek to bring clarity and certainty to taxpayers, including trustees. They will have few excuses for making incorrect statements to Sars. Sars will provide guides, clarity notes, interpretive notes and advice on its website. Trustees and their advisers will need to keep abreast of the guidelines.
Objective 2 – Facilitate compliance with obligations
Sars will address challenges that hinder compliance, such as registering trusts as taxpayers with Sars. Sars is working on an automatic interface with the Master of the High Court to enable automatic registration of a trust as a taxpayer with Sars when registering a trust with the Master, similar to automatic registration of ‘a company as a taxpayer when registering with the CIPC (companies and Intellectual Property Commission).
Objective 3 – Make non-compliance difficult and costly
Sars recognizes that many trusts are not compliant. Such non-compliance includes issues related to registering as taxpayers, submitting returns and paying taxes. Sars encourages voluntary taxpayer compliance in accordance with its voluntary compliance program. Sars warns that in the event that someone does not do the right thing and use Sars’ services properly, Sars will come to a point where he can identify those who do not comply. Sars will use every aspect at its disposal to enforce the law. It has been pointed out that Sars’ journey is to collect the taxes owed to him. This is a great warning signal for administrators to proactively tidy their affairs, before Sars knocks on their door with his intelligence and relevant information at their fingertips.
Goal 4 – Strong workforce
Sars is committed to developing a high performing, diverse, agile, engaged and engaged workforce. It is important that Sars employees understand the intricacies of trusts and how their tax obligations are determined. Sars recruits the right caliber of employees and trains relevant staff to develop expertise to audit trusts and provide advice in service centers. Sars strives to empower employees to properly manage trusts.
Objective 5 – Develop the use of data
Sars is preparing to use data as part of its comprehensive knowledge management framework. This will ensure integrity, insight and improved results. Sars has, over the years, built strong networks and data point integration, which will help them have access to all relevant information, without depending on fiduciaries to disclose it to them. They will interface with the Master of the High Court, financial institutions and other entities to collect data. Sars will be able to ensure that income flowing through a trust is taxed in the hands of the person who is the ultimate beneficiary, through proper use of the data. Gone are the days when distributions made to beneficiaries, which are taxable in their hands, could slip through the cracks. It will also be necessary to apply the correct application of attribution rules related to trusts, which tax donors and lenders, rather than the trust or its beneficiaries.
Objective 6 – Modernize systems
Sars strives to provide digital and streamlined online services, also for trusts. He recognizes that he can improve his online services, such as changing bank details. This should go a long way in helping trustees stay compliant.
Objective 7 – Work with stakeholders
Sars works with its stakeholders to improve its system, including with the Master of the High Court, the Department of Justice, tax specialists and those responsible for the administration of trusts. Sars wants to provide a system that is compliant and easy to use.
Objective 8 – Strengthen public confidence in the tax administration system
Sars recognizes that trust is an important aspect in ensuring that he will grow up to be a smart, modern Sars who acts with unquestionable integrity and who is trusted and admired.
Trustees must understand Sars’ strategic objectives and bring all trust affairs in order and comply with our law. A trust can no longer be treated in the same way as a will – which goes into a “coin toss”. Trusts can no longer be used solely as tax planning vehicles. Even if an estate planner uses a trust to protect their assets, it must be properly maintained, including the timely and proper submission of tax returns.
Phia van der Spuy is a Chartered Accountant with a Masters in Taxation and Registered Trust Practitioner from South Africa®, Master Tax Practitioner (SA) ™, Trust and Estate Practitioner and founder of Trusteeze®, the provider of a confidence.
* The opinions expressed here are not necessarily those of the IOL or the titles sites.
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