There have been significant changes made to legislation that affect trusts of which all trustees should be aware of.  The majority of these came about after the recent grey-listing of South Africa by the Financial Action Task Force (FATF) and Treasury introduced measures to improve the shortcomings identified to combat money laundering.

There is also a very important change to information that must be submitted to SARS.  The purpose of which is to ensure that attributions, income, gains and other distributions allocated to beneficiaries from Trusts are accurately recorded and reported to SARS.

FICA

The FIC Act was amended whereby categories of business were added to the list of accountable institutions.  Included in this list is a trust and company service provider (TCPS).  A trust and company service provider includes any person, who carries on the business of assisting their client(s) in creating a trust arrangement for a client and/or who carries on the business of preparing for or carrying out transactions (including as a trustee) related to the investment, safe keeping, control or administering of trust property within the meaning of the Trust Property Control Act, 1988 (Act 57 of 1988).

This means that there are now significant obligations imposed on trustees and TCPS to comply with these provisions, including keeping adequate records, specifically, but not exclusively, in relation to the identity of the founder, trustees and beneficiaries of trusts, and to ensure that the information is updated accordingly. These requirements are similar to what banks and financial institutions require of their clients.

There is also an amendment to the Trust Property Control Act in terms of which a trustee must disclose his or her position as trustee to an accountable institution with which the trustee engages, and a trustee must make it known to the accountable institution that the transaction or business relationship relates to trust property.

Where we as a TCPS assist our clients in the creation of a trust arrangement, we must comply with these additional requirements and we will therefore need to institute and maintain FICA documents as required by legislation.  Trustees of trusts must ensure that they institute the relevant procedures and maintain up-to-date information as required.  Failure to comply could lead to fines being imposed and/or imprisonment. 

Beneficial Ownership

New rules regarding the disclosure of beneficial ownership of assets were also introduced to address the risks of money laundering.  These rules relating to trusts, which came into effect from 1 April 2023 are outlined below.

In relation to a trust, beneficial ownership means the following:

• A natural person who directly or indirectly ultimately owns the relevant trust property.
• A natural person who exercises effective control of the of the administration of the trust.
• Each founder of the trust.
• Each trustee of the trust.
• Each beneficiary named in the trust deed

Where any of the founder, trustees or beneficiaries are legal persons or a partnership, the rules state that this goes back to the natural person.

In terms of section 11A(1) of the Trust Property Control Act a trustee must:

• Establish a record of the beneficial owners of the trust;
• Keep a record of the prescribed information relating to the beneficial owners of the trust;
• Lodge a register of the prescribed information on the beneficial owners of the trust with the Master’s Office; and
• Ensure that the prescribed information above is kept up to date.
• The information to be kept for each beneficial owner includes the full names, date of birth, nationality, official identity number, residential address, address for service of notices, other means of contact, the reasons why the person is a beneficial owner and, where applicable, the date upon which he or she became and/or ceased to be a beneficial owner;
• Where the beneficial owner is a minor, the same information must be provided for the legal guardian of the minor.
• In addition, the trustees must keep a certified copy of the official identification document of each beneficial owner that must correspond to the details above

A trustee who fails to comply with the above obligations will have committed an offence and on conviction can be liable of a fine not exceeding R10 million, or imprisonment not exceeding five years, or both.

At Newtons we can assist you with meeting these requirements in which case we will need our clients to provide us with a power of attorney to provide the service.  Please contact us should you require assistance.

SARS – Third-party data reporting required by Trusts

SARS has introduced a new tax reporting to be known as IT3(t), the purpose of which is to ensure that attributions, income, gains and other distributions allocated to the beneficiaries from trusts are accurately reported to SARS.  This will be similar process to the current employees’ salary submissions (IRP5’s). 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.

This means that the trust will be obliged to submit a data file to SARS which will be used by SARS to pre-populate the income tax returns of beneficiaries.  The due date for the first mandatory trust submission is 30 September 2023 for the period 1 March 2022 to 28 February 2023.  This will be an annual submission to SARS.

The channel for submission will differ depending on the size of the trust.  For trusts with less than 20 beneficiaries the submission will be through E-Filing. However, if the trust has more than 20 beneficiaries, the trust will have to prepare a datafile which must be submitted to the Hyper Text Transfer Protocol Secure channel or Connect Direct. 

The data provided will have to contain the following information:

• Details of the reporting trust
• Details of the submitting entity (Tax practitioner or trustee)
• Details of the trust beneficiaries including tax numbers, contact details, etc.
• The taxable amounts distributed (vested) in beneficiaries, including the nature of the income;
• Details of non-taxable amounts distributed to beneficiaries
• Trust financial flows (for example loans to and from beneficiaries and trustees)

Most of the above information is already required to be submitted when the trust income tax return is filed, however the above reporting must now take place before the tax return is filed.  Trustees will therefore need to ensure that they have all of the above information on the beneficiaries and other related persons to the trust available and as such trusts financial statements for the year ended 28 February 2023 should be finalised before 30 September in order to report on the distributions and financial transactions by the submission deadline.