Trustworthy: how trustees should avoid Sars' new administrative penalties

While the South African Revenue Service (Sars) has gradually introduced administrative penalties for late or non-submission of tax returns, starting with individuals and later extending to companies, trustees have so far remained penalty-free. Sars has been strengthening its enforcement measures and plans to extend penalties to trusts, recognising that hundreds of thousands of trusts are non-compliant.

The implementation is scheduled for early 2026, leaving limited time for non-compliant trusts. Although exact figures are unavailable, estimates suggest that up to two-thirds of all registered trusts with the Master of the High Court are not registered as taxpayers, despite the legal requirement for all trusts to register with Sars, even if labelled as “passive” or “dormant”. Of the one-third that are registered, only about 50% are believed to have submitted tax returns. That presents an opportunity for Sars.

How do the current penalties work?

Sars may impose administrative penalties if a taxpayer fails to comply in certain areas of their tax affairs, including Personal Income Tax (PIT), Corporate Income Tax (CIT), Pay As You Earn (PAYE), or value-added tax (VAT). An administrative penalty is a fine imposed under section 210 of the Tax Administration Act (TAA). The TAA details the different types of non-compliance subject to fixed-amount administrative penalties.

Sars introduced administrative penalties for PIT through legislative changes, mainly within the TAA and related amendments to the Income Tax Act. The penalties were enforced under section 75B of the Income Tax Act, 1962, and later consolidated under Chapter 15 of the TAA, which became operational on October 1, 2012. The penalty regulations officially took effect on January 1, 2009, and were phased in, starting with outstanding returns from November 23, 2009. During the initial phase, penalties were applied only to individuals with two or more overdue tax returns for tax years from 2007 onwards.

This approach supported the development of automated systems and provided non-compliant taxpayers a grace period to regularise their affairs. With substantial regulatory tightening, from December 1, 2021, penalties could be imposed if an individual had one or more overdue returns for assessment years from 2007 onwards. This means that from December 1, 2022, individuals were required to submit all outstanding returns for the 2007 tax year and onwards to avoid penalties. 

Regarding overdue CIT returns, Sars issued a media release on November 29, 2018, confirming it will soon begin imposing administrative non-compliance penalties, as outlined in Chapter 15 of the Tax Administration Act. Sars started applying administrative penalties for outstanding CIT returns for years of assessment ending in or after 2009. Initially, penalties were only levied if a company had two or more overdue returns for tax years from 2009 onwards. Similar to individuals, from December 1, 2021, a penalty could be imposed if a company had one or more overdue returns for assessment years from 2009 onwards.

This meant that from December 1, 2022, companies had to submit all required returns from the 2009 tax year onwards to avoid penalties. For CIT, penalties are applied if the company fails to submit an income tax return as required under the Income Tax Act, when Sars has issued a final demand referencing the public notice and requesting the overdue income tax return, and the company fails to submit the return within 21 business days of the final demand date.

Sars will keep penalising non-compliant taxpayers month after month until the outstanding returns are submitted or for a maximum of 35 months. Unpaid penalties will also attract interest each month they remain unpaid. If the admin penalty stays unpaid, Sars can also appoint an agent, such as a bank or employer, to collect the money on its behalf.

How will it work for trusts?

All trusts in South Africa are required to register for tax. For the 2025 tax year, the trust tax return (ITR12T) submission period runs from September 20, 2025, to the final deadline of January 19, 2026. Sars plans to use the period from January 20, 2026, to the end of January 2026 to establish which registered trusts failed to submit income tax returns for assessment years ending February 2024 and 2025.

Similar to companies, Sars will then issue a final demand to the trustees, referencing the public notice and requesting the submission of the overdue income tax returns. If the trustees fail to submit the returns within 21 business days of the final demand’s issue date, Sars will start penalising them.

Sars' plan is to begin levying penalties from March 1, 2026, if both the 2024 and 2025 tax returns are not submitted. This is the plan for the first year’s implementation. However, it is anticipated that Sars may, in the future, adopt the same process used with individuals and companies to penalise trustees even if only a single tax return remains outstanding from 2024 onwards. No registered trust with the Master is exempt, regardless of whether the trustees label it as a “dormant” or “passive” trust. Sars is also relying on details of registered trusts received from the Master and third-party data providers, such as banks, to identify unregistered trusts. 

What are the penalties?

The administrative penalty for failing to submit a return involves fixed amounts based on a taxpayer’s taxable income. Penalties will range from R250 to R16 000, depending on the company’s assessed loss or taxable income, for each outstanding return, for each month the non-compliance persists.

Along with penalties for late submissions, Sars also applies penalties and interest for late payments and income understatements, which can range from 10% to 200% of the tax shortfall. 

What should trustees do if many years’ returns are outstanding?

If the trustees have not yet registered the trust as a taxpayer with Sars, they must prioritise this. If a trust is registered only after March 1, 2026, trustees could face penalties. Trustees should focus on the 2024 and 2025 tax returns to avoid immediate penalties. Afterwards, they should submit all outstanding tax returns to prevent future penalties.

In complex trusts, this may be difficult, as some tax rules, such as the attribution rules and the treatment of expenses under Section 25B of the Income Tax Act, are intricate and require cumulative and rollover calculations. Therefore, it might not be practical to start with the 2024 and 2025 tax returns if many other returns remain unsubmitted. As a word of caution, do not leave the trust’s tax returns until the last minute, as it has become a complicated process over the years, and trustees are required to submit resolutions for each transaction along with other supporting documents, like minutes of meetings with the trust’s tax return. Do not backdate these documents, as you may be caught out by Sars.

* Van der Spuy is a Chartered Accountant with a Master's degree in tax and a registered Fiduciary Practitioner of South Africa®, a Chartered Tax Adviser, a Trust and Estate Practitioner (TEP), and the founder of Trusteeze®, the provider of a digital trust solution.

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