Administering a trust – much more complex than before

Care must be given to the definition of a beneficial owner as this definition is far-reaching. File image.

Care must be given to the definition of a beneficial owner as this definition is far-reaching. File image.

Published Oct 3, 2023


By Thando Lamula

SA tax authorities have been on their toes since the country was greylisted. It has been tightening and strengthening its laws in order to adhere to the FATF recommendations. On the flip side, this intervention has caused a stir in most industries, including the trusts administration industry. This stir in the form of ‘double’ reporting to the Master of the High Court and the South African Revenue Service (Sars) has made the administration of trusts more complex and administrative-intensive than before.

Following the greylisting lashing from the FATF, there has been an abrupt change in the Trust Property Control Act (TPCA). Section 11A of the TPCA requires trustees or trust administrators to establish and keep an up-to-date record of information relating to beneficial owners of trusts. Trustees are thus required to make their reporting submissions to the Master. It further states that the Master must keep a register in the prescribed format containing the prescribed information on the beneficial owners of trusts. The prescribed form in which the Master must keep the records is in an electronic register. This particular register is in a format which is compatible with Google Forms to be uploaded to the Master’s Portal. Currently, the Master is prototyping a new platform on the Integrated Case Management System.

According to section 1 of the TPCA, a “beneficial owner” with regards to a trust instrument means a natural person who exercises effective control of the administration of the trust arrangement that are established pursuant to the trust instrument, the founder/s of the trust, each trustee of the trust and each beneficiary referred to by name in the trust instrument.

Where the beneficial owner is a legal person, a person acting on behalf of a partnership or in pursuance of the provisions of a trust instrument, the natural person who directly or indirectly ultimately owns or exercises effective control of that legal person or partnership or the relevant trust property or trust arrangement pursuant to that trust instrument, should also be included.

Care must be given to the definition of a beneficial owner as this definition is far-reaching.

In the case of a discretionary beneficiary, if that beneficiary has never received a distribution but the beneficiary is named as a beneficiary in the trust instrument, the new rules shall apply to them and they would need to be indicated on the beneficial owner register. However, if the beneficiary is not specifically named in the trust instrument and forms part of a class of beneficiaries, regardless whether they have received benefits or not, such beneficiary is not required to be included in the reporting.

In addition to the reporting requirements to the Master, Sars now also requires reporting of the beneficial owners of a trust, similar to the Master’s requirements, in the trust’s annual tax return. This seems to be a replication of information provided.

Sars also requires that all trustees must submit third-party returns for trusts by September 2024. A third-party return is a return where Sars mandates another person who employs, pays amounts to, receives amounts on behalf of or has control over assets of another person to submit a return on behalf of the other party.

Similar to financial institutions, when these perform third-party reporting and similar to medical aid institutions, when these are reporting medical tax information, the trust reporting requirement will follow the same reporting mechanism to Sars.

This reporting requirement comes in the form of an IT3(t) form as prescribed in accordance with Sars’s Business Requirement Specification – IT3 Data Submission.

In this regard, all trusts are liable to report, excluding collective investment schemes and Employment Share Incentive Scheme Trusts. Similar reporting requirements will apply to Public Benefit Organisations from March 2024.

A trustee who fails to comply with the obligations outlined in the TPCA could, upon conviction, be liable for a fine not exceeding R10 million or imprisonment not exceeding five years, or both. Sars could also dish out administrative penalties.

These new reporting requirements will place a high administrative and reporting burden on trustees. For instance, reporting on class or unknown beneficiaries will not be possible. Decisions that may lead to vesting need to be recorded and provided annually – record keeping and retention might become a problem.

The trust administration industry is likely to see an increase in trust administration costs. These administration costs will most likely be based on a risk-based pricing approach. On the positive side, the sector is likely to be more formalised. It is important to stay close to the developments and to take the required actions with support from various advisory professionals.

* Lamula is a chartered tax adviser at the South African Institute of Taxation (Sait)

**This article was originally published in TaxTalk magazine, and has been shortened.