Trusts are facing a multitude of new reporting requirements

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The South African Revenue Service (Sars) is moving full steam ahead to implement a variety of reporting obligations for trusts, public benefit organisations (PBOs) and employers.

All these obligations will increase the administrative burden on trusts, employers, and welfare organisations quite significantly, says Tarryn Atkinson, the deputy chairperson of the South African Institute of Chartered Accountant’s national tax committee.

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, and similar reporting obligations for PBOs will kick off in March next year.

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.

Significant non-compliance

Phia van der Spuy, the founder of Trusteeze, says Sars has found significant non-compliance within trusts. On average, trust tax returns are submitted seven years after they were due.

Trusts are seen as low-hanging fruit for Sars to collect significant amounts of additional revenue. In the 2015 tax year, trusts declared distributions of close to R60 billion in their financial statements. By the time the trust submits its tax return, it is years after the beneficiaries have submitted theirs.

Changes to the Trust Property Control Act were introduced to combat money laundering and terrorism financing in an attempt to prevent the country’s grey-listing by the Financial Action Task Force.

It is increasingly important for trustees who are joint controllers of trust assets to ensure that all the trust’s affairs are in order. The amended Trust Act imposes fines of up to R10 million and/or a maximum of five years in prison, says Van der Spuy.

Atkinson adds that the additional reporting requirement for Sars will be a substantial challenge for trustees. They will be similar to the data-reporting requirements in the tax return. However, the challenge will be to obtain all the relevant calculations and values in time – generally five months before year-end.

She says most trusts have a February year-end, and generally they would have issued resolutions about their distributions before the February year end, but the values would be available only once the financial statements have been finalised.

“Of course, it will be easier for corporate trusts to do the reporting quite quickly, but small family or trading trusts do not have all the information available to process and provide Sars with the final figures.”

Difficult questions

Atkinson says getting the calculations and reporting wrong could expose trustees to difficult questions when there are deviations from the data reported in September and the data reflected in the annual trust tax return.

Van der Spuy adds that because of the additional reporting to Sars, the Master of the High Court and the Companies and Intellectual Properties Commission trust information must be consistent, accurate and reliable, otherwise trust administrators and trustees may end up with penalties and fines.

Another major move, announced in the February budget, is the monthly reporting requirement of payroll tax liabilities (Pay-As-You-Earn, Unemployment Insurance Fund and Skills Development levies). “This is essentially going to be like running your IRP5 process on a monthly basis,” says Atkinson. Currently, employers must file a reconciliation of the payroll taxes twice a year (EMP501).

Some corrections on the payroll are verified only bi-annually to double check whether income is reflected in the correct codes and to identify finger-errors on overtime or repayment of benefits when someone leaves the company (a student loan or a bonus).

Sars wants a single file that will include all employer tax declarations and all the information relating to each individual employee’s earnings on the payroll for the month.

Payroll systems may hold all this data, but there are processes that will have to change to extract and submit it to Sars in more detail, more frequently, says Atkinson.

System changes

“The rush to data is a big factor and a concerns that has been raised is that South Africa is still a developing country where not everyone has all the systems and technology to be compliant with all the obligations.” Atkinson says some employers and smaller trusts are still running payrolls on Excel spreadsheets.

Entities with fewer than 20 beneficiaries or donors will be able to use Sars electronic filing system to submit their data. However, if they have more than 20 beneficiaries or donors, they will have to prepare a data file.

“Your small animal shelter down the road will now have to convert all their donations into a data file for Sars.” This could be a challenge for many, says Atkinson.

Bigger entities have the HTTPS file transfer option, but the file must meet all the Business Requirement Specifications. Another option, mostly used by large third-party data providers such as financial institutions, is Connect:Direct, which is a paid channel.

Matters to consider:

  • Data: do you have all the data required? Is it readily available?
  • 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?
  • 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?

Amanda Visser is a freelance journalist who specialises in tax and has written about trade law, competition law and regulatory issues.

Disclaimer: The views expressed in this article are those of the writer and are not necessarily shared by Moonstone Information Refinery or its sister companies.

1 thought on “Trusts are facing a multitude of new reporting requirements

  1. Well done SARS,yet another tax to feed to your corrupt clan.

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