During the 2014 tax year, the South African Revenue Service (“SARS”) introduced a new income tax return for trusts (ITR12T) which was much more comprehensive than its predecessor. The contents of the return were also customised based on the answers to certain questions. SARS has recently announced further enhancements to the ITR12T which apply to the 2015 tax year. The purpose of these amendments seems to be to ensure that the return that the trustees submit to SARS incorporates all relevant transactions and activities that have an impact on the assessment of tax in a given financial year. The updated return was available from 12 October 2015. Some of the more significant changes to the return announced by SARS are summarised below.
New sections have been included in the revised return to deal with the following:
- the disclosure of distributions received from a Real Estate Investment Trust (“REIT”);
- the disclosure of donations by the trust to any Public Benefit Organisation which may be deductible in terms of section 18A of the Income Tax Act. SARS will calculate the 10% limitation on deductible donations and any excess amount will be carried forward to the next year of assessment. The return now also distinguishes a trust that is a collective investment scheme (“CIS”) from other trusts in relation to such donations;
- the disclosure of expenditure incurred in exchange for venture capital company (“VCC”) shares which may be deductible in terms of section 12J of the Income Tax Act; and
- any recoupment in respect of VCC shares which were sold for which a tax deduction was previously allowed. The amount recouped in respect of VCC shares sold must be added to the trust’s taxable income.
In the 2014 tax return, much of the new information required was optional. However, this information has become mandatory with effect from the 2015 tax year.
For example, in 2014, only the information regarding beneficiaries who transacted with the trust was mandatory. Now, the details of all persons (individuals, companies or trusts) which transacted with the trust must be provided. If the number of persons who transacted with the trust is 50 or fewer, the details of every person and the related transactions must be provided. If more than 50 persons transacted with the trust, then the details of the transactions may be provided on a consolidated basis, together with the details of every person where the aggregate of the transactions was in excess of R500 000 (limited to the top 50 persons based on aggregated transactional value). The information which must be disclosed includes full details of all parties contributing funds or assets to the trust and the relevant transactions, as well as details of any party benefitting from the trust. A non-residency indicator has been added to the details of persons who participated in transactions with the trust to make the taxpayer reference number optional in the case of non-residents.
Other previously optional information which is now mandatory includes all local and foreign income fields, and certain fields in the schedule of local and foreign capital gains and losses.
The statement of assets and liabilities must also be completed. In the updated return, the local and foreign assets have been grouped together under total assets, with the local and foreign liabilities also being grouped together under total liabilities. Interest-bearing loan accounts and interest-free loan accounts must be shown separately in the assets schedule and a new item has been added in respect of Trust Capital – Retained Earnings.
The supporting documentation required in respect of the return includes the annual financial statements, all certificates and documents relating to income and deductions, documentary proof of any tax credits claimed and particulars of the assets and liabilities disclosed. All supporting documents should be retained for five years, as SARS may request the documents if verification is required.
There are additional schedules which must be completed if the trust was engaged in mining operations or if the trust, together with any connected person in relation to the trust, holds at least 10% of the participation rights in any controlled foreign company (“CFC”).
Trustees should be aware of the increased level of reporting required by SARS in respect of trusts, and should ensure that all the relevant information is available for the completion of the trust’s income tax return.