SARS Backs Down On Premature Trust Penalties

Trusts that were served with final demand letters in February, on account of failing to submit their 2024 and 2025 tax returns, have effectively been granted a reprieve, as they may now disregard those letters entirely and all administrative penalties linked to them will be wiped clean.

Key Takeaways

• Penalties reversed, not cancelled for good: The roughly R70 million in premature penalties will be wiped, but SARS plans to issue fresh, legally valid final demand letters and will resume enforcement from that point.
• Compliance deadline is now 4 May: Only penalties raised before this date qualify for reversal, since that’s when the March public notice actually came into legal effect, so trusts still need to get their 2024 and 2025 returns filed.
• Dormant trusts aren’t exempt: Even inactive trusts must file outstanding returns, settle liabilities, and follow a formal deregistration process, otherwise penalties can keep accumulating indefinitely.

Reprieve for Trusts After Premature Demand Letters

The scrapping of approximately R70 million worth of penalties follows sustained and forceful pushback from the trust industry, which raised objections to the demand notices having been issued before the relevant penalties were actually legal in force. The public notice that gave SARS the legal basis to impose these penalties was, notably, only gazetted at the end of March, well after the original letters had already gone out.

In correspondence dispatched to trustees on Monday, the South African Revenue Service (SARS) verified that every penalty tied to those premature letters would be reversed in full.

Trustees ought to be able to view these corrections once they are reflected on their penalty statements of account via eFiling.

SARS indicated in the letter that it would, in due course, issue a fresh final demand letter, and that it would proceed with administrative penalties strictly in accordance with the applicable legal requirements going forward.

A Matter of Timing

Phia van der Spuy, founder of Trusteeze, pointed out that although the notice listing non-submission of income tax returns as an act of non-compliance was only published at the end of March, SARS nevertheless continued relying on the February final demand letters in the interim.

The revenue service, according to Van der Spuy, did not go on to issue fresh letters once the public notice had actually been published, a state of affairs that she said was plainly not aligned with the prevailing legislation at the time.

The March public notice only empowered SARS to impose monthly penalties for the failure to submit trust tax returns for the 2024 and 2025 years of assessment from 4 May onwards.

As a result, any penalties that were raised before that date will now be reversed.

SARS had previously introduced administrative penalties for non-submission by individuals and companies some time ago, initially applying penalties only in respect of two years of non-submission, before later extending this reach to prior years as well.

Related reading: The taxman is reaching back nearly a decade to calculate trust penalties

Van der Spuy had earlier advised trustees to prioritise their 2024 and 2025 tax returns in order to avoid penalties, and recommended that, once this was done, they should proceed to submit all remaining outstanding tax returns so as to guard against future penalties.

This advice was echoed by Roxshanna du Toit, head of trusts at Tax Consulting SA, who observed that achieving full compliance requires trust representatives and their tax practitioners to attend to several distinct steps.

What Full Trust Compliance Requires

• Submit all outstanding trust income tax returns
• Verify and update trust information held by SARS
• Settle any outstanding tax liabilities
• Ensure that financial records are accurate and complete

Keeping a running compliance checklist per trust, rather than relying on memory, can help trustees and their tax practitioners track outstanding returns across multiple tax years at once.

The Administrative Penalty Structure

The administrative penalty is applied automatically against the assessed loss or taxable income of the trust, and the amount varies depending on income level, as set out below.

Penalty Element	Detail
Penalty range	R250 to R16 000 per outstanding return, per month
Basis of calculation	Depends on the trust’s income level
Maximum duration	Up to 36 months, or until the non-compliance is rectified
Recourse available	A request for remission may be submitted

Taxpayers who disagree with a penalty that has been imposed are entitled to submit a request for remission, and this can be done directly through the eFiling system designated for trusts.

Inactive Trusts Still Require Action

Stacy Wallace, managing director of Hobbs Sinclair Legacy, had previously reminded trustees that even inactive trusts continue to carry ongoing compliance obligations.

She observed that many trustees mistakenly assume that once a trust stops holding assets or conducting transactions, its obligations simply fall away of their own accord.

However, even where a trust no longer serves any active purpose, it must still pass through a formal process before it can be removed from the tax system entirely.

Steps to Deregister an Inactive Trust

• Submit all outstanding tax returns
• Settle any outstanding tax liabilities
• Provide supporting documentation confirming the termination of the trust

Wallace also pointed out that, although administrative penalties are technically imposed on the trust itself, trustees remain personally responsible for ensuring that the trust meets all of its tax and regulatory obligations.

She explained that trustees occupy a fiduciary position, and are therefore responsible for ensuring that a trust’s affairs are properly administered at all times.

Wallace added that allowing a trust to drift into non-compliance can create unnecessary costs and complications that could otherwise have been avoided through timely action.

Conclusion

This reversal buys trusts a bit of breathing room but not a way out: the underlying compliance obligations haven’t gone anywhere, and SARS has made clear that new, legally sound demand letters are coming. Trustees, whether their trusts are active or dormant, would do well to use this window to file outstanding returns, settle any liabilities, and tidy up their records now, rather than waiting for the next letter to force their hand.