Trust reporting obligations expanded

Following a recent change to the Income Tax Act No. 58 (1962) (“IT Act”), knowing a beneficiary’s tax residency status has become vital to trustees when making distributions to beneficiaries. 

Prior to 1 March 2024, subject to deeming provisions contained in section 7 of the IT Act, section 25B of the IT Act required income to be taxed in the hands of a beneficiary rather than the trust, if the trustees resolved to make an income distribution to the beneficiary in the same year of assessment that the income was received by or accrued to the trust. This principle applied irrespective of whether the beneficiary was a resident or non-resident for tax purposes in South Africa. 

The Eighth Schedule to the IT Act has always dictated that, where an asset or a capital gain of the trust is distributed to a non-resident beneficiary, the distribution should be taxed in the hands of the trust. 

Section 25B of the IT Act was amended to align the taxation of income with the principles contained in the Eighth Schedule to the IT Act. The effect of the amendments is that income and capital gains are taxed in the hands of the South African trust where the beneficiary is not tax resident in South Africa. 

The new tax return for trusts 

With effect from years of assessment commencing 1 March 2024, a South African trust is now taxed on any distributions to beneficiaries that are non-resident taxpayers. 

The trustees are also required to notify non-resident beneficiaries when distributions are made. This is because these beneficiaries may also have reporting obligations in the country in which they are tax resident. 

The new annual tax return to be completed for trusts (“ITR 12T”) also requires the disclosure of the tax residency status of trust beneficiaries. 

Therefore, it is imperative that the tax residency status of trust beneficiaries is confirmed when a distribution is made, as a distribution to a non-resident beneficiary could expose the trust to penalties and additional tax. 

Provisional tax 

The deadline for the first provisional tax payment in respect of the 2025 year of assessment for trusts and individuals have passed. However, the second provisional tax payment deadline is only a few months away (i.e. 28 February 2025).  

Now is the time for trustees to confirm the identity and tax residency status of the trust’s beneficiaries. SARS is increasingly gathering third party data from multiple sources and with the new reporting obligations implemented by SARS, it is becoming mandatory to submit the resolutions signed by the trustees to confirm each distribution made to beneficiaries.  

If SARS determines that a beneficiary should have been reported as a non-resident, in addition to provisional tax under-estimation penalties, the trustees would be in contravention with the provisions of Trust Property Control Act No. 57 (1988) (“TPC Act”). 

The new third party return 

Trustees are now also required to provide SARS with a third party return, the IT3(t), on an annual basis.  

All amounts distributed to beneficiaries during the relevant year of assessment, including any income, capital gains, and other amounts such as loan repayments, must be reported in the IT3(t). The details of the beneficiaries, including their tax residency status, should also be disclosed. 

The takeaway 

Beneficial ownership registries now need to be reported to the office of the Master of the High Court, as well as SARS. 

Trustees that do not comply with the provisions of the TPC Act, may face harsher punishment, including a fine or imprisonment. 

If you are a trustee of a South African trust, it is important to be fully involved in the affairs of the trust. This will enable you to determine the tax consequences of any distributions made by the trust, and to discharge the new expanded reporting obligations imposed on trustees. 

Authors: 

Sharon MacHutchon, Manager

Elzhane Henn, Director