Tax & Advisory » Important Updates to Trusts: Reporting Obligations, Receipt Requirements and Amendments

Important Updates to Trusts: Reporting Obligations, Receipt Requirements and Amendments

Trusts are widely used in South Africa for estate planning, business succession planning, and asset protection. However, the latest changes in the law may have a significant impact on trust structures and how they are managed.

There have been some important practical developments regarding trusts, which trustees and beneficiaries should be aware of. In this blog we discuss:

  1. New tax reporting obligations of trusts
  2. New requirements for section 18A receipts issued by public benefit organisations
  3. Trust Property Control Act amendments requires more control from trustees

Additional Tax Reporting Obligations Of Trusts

Trustees will now become third-party data providers like banks, insurance companies and estate agents. Submissions of the IT3(t) data on trusts will start in September. In terms of the trust reporting, there will be an obligation on trustees to report directly to SARS, outside of the current trust tax return process, and before the trust tax return is due.

The data will include the demographic details of the trustees and beneficiaries, details of distributions to beneficiaries, and details of other financial flows, such as donations and distributions. This declaration process ensures that income accrued that that taxpayer is prepopulated on the taxpayer’s annual income tax return.

The reporting of beneficial owner information and the third-party declarations will place a substantive administrative burden on the representative taxpayer of the trust. Matters to consider:

  1. Data: do you have all the data required? Is it readily available?
  2. Systems: do you have the systems to collate the data and generate the data file? Will you need to capture data manually onto eFiling? Do you have resources for this?
  3. Timing: will you have all the necessary financial data before the September due date? Will you need to change your processes to ensure that the financial records are accurate and complete before that date?

More Information To Be Included On Section 18A Receipts

Section 18A of the Income Tax Act allows approved public benefit organisations (PBOs) to issue receipts to donors for donations received. The receipt issued by a PBO allows the donor to receive a tax deduction for such expenditure, subject to the limitations in section 18A. It is required that with effect from 1 March 2023, all receipts issued in terms of section 18A contain the following:

  1. The reference number of the PBO or other approved entity issued by SARS for the purposes of section 18A;
  2. The date of the receipt of the donation;
  3. The name of the PBO or other approved entity which received the donation, together with an address to which enquiries may be directed in connection to such donation;
  4. The name and address of the donor;
  5. The amount of the donation or the nature of the donation (if not made in cash);
  6. A certification to the effect that the receipt is issued for the purposes of section 18A, and that the donation has been or will be used exclusively for the object of the PBO or approved entity for the carrying on of the relevant PBA;
  7. Donor nature of person (natural person, company, trust, etc.);

The following additional information must, from that date, be included on a section 18A receipt:

  1. Legal nature of the donor being a natural person, company, or trust.
  2. Donor identification type and country of issue (in the case of a natural person).
  3. Identification or registration number of the donor.
  4. Income tax reference number of the donor (if available).
  5. Contact number of the donor.
  6. Email address of the donor.
  7. A unique receipt number; and
  8. Trading name of the donor (if different from the registered name).

Taxpayers and PBO’s must ensure that the section 18A receipts issued contain all the requisite information as required above. Failure to include this additional information on the section 18A receipt will prohibit any deduction for donations made to the organisation in question.

Changes in Trust Property Control Act

The Government Gazette published on the 29th of December 2022 contained various amendments to The General Laws (Anti-Money Laundering and Combatting Terrorism Financing) Amendment Act, 2022 (Amendment Act), including important amendments to the Trust Property Control Act, 1988 (“the Act”).

These amendments aim to combat money laundering and provide an additional layer of security and diligence to be undertaken given South Africa’s grey-listing by the Financial Action Task Force.

The amendment to the Act has brought about requirements relating to the disclosure of beneficial ownership. Beneficial ownership usually refers to the situation where a person enjoys the benefit of ownership even though the title to a form of property is in another name. The definition of beneficial ownership in the Act and in relation to a trust is broader and further provides for the following to fall under beneficial ownership:

  1. Each founder of the trust;
  2. Each beneficiary named in the trust deed;
  3. Each trustee of the trust; and
  4. A natural person who directly or indirectly owns the trust property, or a natural person who exercises control over the trust property.

Furthermore, in addition to the broader definition of beneficial ownership section 11A introduces further obligations in relation to the administration of trusts, these include that:

  1. The Master is compelled to keep a register holding the prescribed information relating to beneficial ownership. This register must be electronic and must be accessible to all relevant parties via a username and password to allow them to update information and documents needed.
  2. The register kept by the Master must be set up by the trustees and must record the beneficial ownership of the trust.
  3. The information in the register must be available to any prescribed person by the trustee/s and/or Master.
  4. Finally, the trustee should have certified copies of the identification documents for each beneficial owner. These copies should match the personal information in the register, including full name, date of birth, nationality, and ID number.

In Conclusion On The Amendments

The Act increases the responsibilities of trustees for managing trust activities and these changes will have a significant impact on trustees and beneficiaries of trusts in South Africa.

Trustees must fulfill new obligations and ensure they have the necessary data and systems to follow new tax reporting requirements. Trustees must keep an updated register of prescribed information relating to beneficial ownership, accessible via username and password.

PBOs should issue receipts with all required information.

Do you need help to support effective and compliant trusts? Contact the experienced team Exceed for assistance!