Trustees of dormant trusts must act now as Sars begins enforcing penalties for non-compliance. This article explores the implications for trustees and the necessary steps to ensure compliance.
Image: Ziphozonke Lushaba / Independent Newspapers
Trustees who have neglected dormant, inactive, or long-forgotten trusts are being urged to review their tax affairs as the South African Revenue Service (Sars) begins imposing administrative penalties for trust non-compliance.
Sars recently confirmed that the imposition of administrative non-compliance penalties for trusts, originally scheduled to commence earlier this year, was deferred until May 4, 2026, to give trustees additional time to regularise their affairs. With the grace period now over, the spotlight falls squarely on trusts that have outstanding tax returns, unresolved tax obligations, or incomplete deregistration processes.
This development comes against the backdrop of South Africa's extensive trust sector, where many trusts established for estate-planning, asset protection, or family succession purposes remain registered long after their original objectives have been met. In some cases, trusts cease operating altogether but continue to exist on official records, creating compliance risks for trustees who assume no further action is required.
One of the most common misconceptions is that an inactive trust no longer carries any compliance obligations.
Many trustees assume that once a trust stops holding assets or conducting transactions, its obligations simply fall away. In reality, a trust can remain active on Sars' records long after it has ceased operating in any meaningful sense.
Sars has made it clear that trusts that no longer serve a purpose must still follow a formal process before they can be removed from the tax system. This includes submitting all outstanding tax returns, settling any tax liabilities, and providing supporting documentation confirming the termination of the trust.
Trustees should not confuse inactivity with deregistration. A trust that has effectively become dormant may still have filing obligations and other compliance requirements until Sars formally recognises its deregistration.
Even though administrative penalties are imposed on the trust itself, trustees remain responsible for ensuring that the trust complies with all tax and regulatory obligations.
Trustees occupy a fiduciary position and are responsible for ensuring that a trust's affairs are properly administered," says Wallace. "Allowing a trust to drift into non-compliance can create unnecessary costs and complications that could have been avoided through timely action.
The issue is particularly relevant for older family trusts established for estate-planning purposes, as well as trusts created to hold specific assets that have since been sold, transferred, or distributed.
It is not uncommon for trustees to discover that a trust has accumulated several years of outstanding returns after assuming no further action was required.
Unfortunately, the passage of time does not remove the obligation to comply. In many cases, the longer a trust remains unattended, the more complicated and costly it becomes to rectify the position.
Sars has encouraged trustees and their representatives to use the additional time afforded by the deferral to resolve outstanding compliance matters and to submit deregistration requests where appropriate. The revenue authority has also warned that failure to submit returns or formally deregister trusts may result in continued compliance obligations and the enforcement of administrative penalties.
Trustees should conduct a review of all trusts under their administration to determine whether they remain active, confirm that all tax returns have been submitted, and ensure that Sars' records accurately reflect each trust's current status.
The first step is understanding exactly where the trust stands from a compliance perspective. Trustees who are uncertain about their obligations should address the matter sooner rather than later. Once penalties begin accumulating, the cost of inaction can quickly outweigh the cost of resolving the issue properly.
For trustees who have not reviewed a trust's tax affairs in several years, the commencement of Sars penalties serves as a timely reminder that dormant does not necessarily mean deregistered, and that ignoring an inactive trust can become an increasingly costly mistake.
* Wallace is a managing director at Hobbs Sinclair Legacy.
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