The first is the new IT3(t) reporting, which is the same rules under which your bank reports interest income and your medical aid reports medical aid tax information to SARS. The final Regulations on how trusts must report their distributions to trustees is expected to be formally announced in the coming months.
The second, and more immediate and unexpected change, hits any beneficiary of trusts transferring money offshore. SARS implemented a new Approval for International Transfer Application (AIT) process, which replaces the previous Emigration and Foreign Investment Allowance applications.
NON-TECHNICAL ADVISORS’ FEAR MONGERS
There were some unfortunate media releases that claimed that SARS has removed the Foreign Investment Allowance and Emigration / Financial Emigration processes. This is unfortunately simply not true. For those who are more technically inclined, SARS has gone on record to educate taxpayers by confirming that this change has been introduced to facilitate the “consolidation” of Foreign Investment Allowances and Tax Emigration applications.
SARS probably knew that certain advisors might get this wrong and emphasized that the AIT is simply what is “(previously known as Foreign Investment Allowance and/or Emigration)”. There is not much more SARS could do to make it clear that what was previously known as the Foreign Investment Allowance and Emigration is still fully entrenched in getting money abroad.
WHY DID SARS CHANGE THE PROCESS?
The new process has been introduced in furtherance of the SARS tax compliance drive, and to align the process with the Reserve Bank’s exchange control policy.
SARS clarified that this is to “…allow SARS to ensure that all required tax payable has been accounted for and, if required, address any non-compliance that is detected through a verification and/or an audit.”
This deeper look by SARS towards the actual source of funds, comes with much greater scrutiny and disclosure requirements, especially for trusts.
THE WALLS ARE CLOSING IN FOR NON-COMPLIANT TRUSTS
Taxpayers who are financially emigrating or transferring money abroad above their R1 million discretionary allowance per year must be prepared for an in-depth and extensive line of questioning if they are a beneficiary to any trust. It is recommended that taxpayers retain an air-tight paper trail when it comes to distributions made to them from a trust.
In the past, it was mainly high net worth individuals that were subject to a higher level of scrutiny by SARS when compared with other taxpayers. However, the new AIT Application introduced appears to level the playing field and ensures that everyone is held to the same high standard of compliance. SARS has confirmed that it is: “…of the view that taxpayers applying for more than the yearly R1 million single discretionary allowance, are sophisticated taxpayers who should reasonably have records of the cost price of major assets they own.”
THE 7 DWARFS
They may on first appearance look innocent, but as a combination they are formidable. SARS has gone on record that the following minimum questions will be asked from any beneficiary to a trust –
- A copy of the trust deed;
- Resolutions from the Trustees of the trust authorising the distribution to the beneficiary;
- Details of the source of funds distributed by the trust to the beneficiary;
- Bank statements of the beneficiary, issued on the date of the application, reflecting the distribution from the trust;
- Bank statements of the trust reflecting the distribution to the beneficiary, not older than a month;
- The trust’s latest portfolio statement (not older than a month), which must also include the number of shares and current market value; and
- The latest annual financial statements of the trust.
There are also additional questions on whether the trust is local or foreign, questions on the main trustee, loans to a trust and any interest rate thereon etc. Where a donation is received from a trust, this must also be declared to SARS under the AIT Application.
TAX CONSULTANTS, ACCOUNTANTS AND FINANCIAL PLANNERS GEARING UP
Tax Consulting South Africa has been requested by various SARS recognised professional bodies such as the South African Institute of Tax, the FPI and SAIPA, to hold member specialist training on the AIT process. The training sessions, taking place at end of May and beginning June 2023, provide an excellent opportunity for industry professionals to actively engage with and learn from their peers. There is also a Mauritius session confirmed for the 29th of May 2023.
TRUST BENEFICIARIES NEED GOOD HOUSEKEEPING
The AIT Application is a momentous development in the management of tax compliance in South Africa. If you are a beneficiary of a trust with any wealth which may seek to move money abroad, it is strongly recommended to make sure you have the 7 source documents in hand and consider a trust tax and compliance diagnostic, if not recently done.