The South African Revenue Service (SARS) Strategic Plan (2012/13 – 2016/17) highlighted the government’s concern that there was a “compliance risk posed by high-net worth individuals and the use of trusts to conceal their income.”

Some examples of SARS’ trust reform programme over the last few years include:

  • April 2012: SARS launched its Compliance Programme, focusing on the lack of compliance of wealthy South Africans and their trusts.
  • 2013 Budget Speech: Minister Gordhan proposed various measures to protect the tax base and limit the scope for tax leakage and avoidance, including that “… the taxation of trusts will come under review to control abuse.”
  • 2014 tax year: SARS introduced a new, more comprehensive income tax return for trusts (ITR12T) which requires an increased level of reporting in respect of trusts.
  • 13th July 2015: Davis Tax Committee (DTC) released its first report on the proposed amendments to South Africa’s existing estate duty system for public comment.  The DTC made a number of recommendations which will have important implications for estate planning and the taxation of trusts if adopted by Treasury.
  • 2016 Budget Speech: Minister Gordhan proposed tax changes to trusts to curb tax avoidance.

The Davis Tax Committee has yet to issue its final report which will hopefully shed more light on the tax changes we can expect. Despite the uncertainty over the last few years, the importance of trusts should not be overlooked.

Trusts continue to offer valuable benefits, particularly relating to asset-protection and asset-continuation. Trusts are an important estate planning tool, providing certainty for the succession and protection of assets.  Provided that trusts are set up for the right reasons and that the trustees manage the trust assets properly, trusts can offer specific benefits such as savings on estate duty and executor’s fees. Trusts can also be used to protect incapacitated beneficiaries and offer protection from creditors.

Even though it is clear that the courts are scrutinising trusts more closely, the principles of trust law have not changed.  What is important in the current environment is proper trust administration and compliance and so it is crucial that trustees are fully aware of their responsibilities and duties.