The increased scrutiny of trusts and PBOs as a response to combating money laundering and terrorist financing
South Africa’s tax landscape is undergoing significant changes regarding trust reporting requirements, spurred by the recent greylisting of the country by the Financial Action Task Force (FATF). The South African Revenue Service (SARS) has implemented new regulations that affect trusts and public benefit organisations (PBOs). This article aims to provide an overview of these changes and their implications for trust reporting in response to the FATF greylisting.
Trust reporting and third-party data:
SARS now requires trusts and PBOs to submit third-party data, similar to the existing reporting requirements for banks, financial institutions, and other entities. The FATF greylisting has highlighted the need for enhanced measures to combat money laundering and terrorist financing. As part of this effort, trust distributions, which were previously not subject to third-party reporting, now require compliance with these regulations. Trusts must submit relevant information by September 2023, including demographic information of the trust, beneficiaries’ details, taxable amounts distributed or vested, details of non-taxable income distributed, and trust financial flows, using the IT3(t) form.
Enhancing transparency for PBOs:
The FATF’s greylisting has prompted SARS to place special emphasis on PBOs that operate under section 18A of the Income Tax Act. These organisations are eligible for tax deductions on donations made to them. To ensure transparency and integrity in the donation process, SARS now requires approved section 18A institutions to file IT3(d) returns. These returns should contain information about donors and the respective donation amounts. By implementing these measures, SARS aims to address instances of misuse, such as fake donations or non-existent PBOs, and strengthen the credibility of the section 18A donor deduction process.
The consolidation of reporting processes:
To streamline reporting procedures, SARS is merging the IT3(t) and ITR 12T systems into a unified beneficiary system. This integration aims to simplify reporting for trusts and facilitate more efficient compliance with tax regulations. With the responsibility falling on representative taxpayers of resident trusts, such as tax practitioners, the consolidation of reporting processes ensures that accurate and complete third-party data is submitted on behalf of the trusts they represent.
Implications and conclusion:
The changes to trust reporting requirements in South Africa represent a significant shift in tax policy. By expanding the scope of third-party data reporting and strengthening oversight of donations to PBOs, SARS aims to mitigate instances of abuse and enhance the integrity of the tax system. Trusts and their representative taxpayers must familiarise themselves with these new requirements and ensure timely and accurate compliance to avoid penalties or other consequences.
This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein.