SARS’ focus on High Net Worth Individuals (HNWI’s) and their trusts has been a recurring theme in previous Tax Alerts.
The topic featured in the latest Budget Speech. Then, at the beginning of April, when SARS announced that it had over-shot the revenue target, the Commissioner mentioned that SARS research showed that a potentially significant number of HNWI’s "... abused trusts to hide their tax liability".
In April, Mr Bob Head joined SARS as special adviser to the Commissioner. In a Business Day article titled "SA strikes right tax balance to address its challenges" (2 April 2012) he wrote: "Sadly I have never inherited anything and whatever I have I made. I have seen a lot of it disappear in tax. That is just the way it is. I find inherited wealth more difficult to stomach and when the income on that wealth is hidden in trusts and structures to avoid tax, then I really do see red."
That SARS found HNWI’s and their trusts irksome, was clear. What SARS was going to do was, however, not so clear?
Perhaps the latest SARS Strategic Plan (2012/13 – 2016/17) holds the answer?
Under "Risks facing SARS" there is mention (at page 19) of the "Compliance risk posed by high-net worth individuals and the use of trusts to conceal their income." It says that under-declaration of income by persons in the HNWI category (annual income in excess of R7 million, alternatively R75 million in assets) was wide-spread with "only a fraction" having actually declared their income to SARS.
The really interesting bit comes a little later (at page 33). Under the heading "High-net worth individuals - Trusts" there is the following: "The interventions will focus on SARS’s efforts on the auditing and risk profiling of individuals and associated companies together, as the expansion of third party data to identify individuals with disproportionately expensive assets, as well as to prioritise trust reform."
Will SA taxpayers soon face some reform related to the taxation of trusts? There is an ominous ring to the highlighted phrase at the end of the above-quoted passage.