Sars has recently reversed penalties for non-compliant trustees, raising questions about its enforcement strategy. This article explores the implications of this decision and what it means for the future of trust compliance in South Africa.
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It could not have been easy for Sars to wave goodbye to more than R 70 million by writing off the first wave of penalties recently issued to trustees for non-compliance, as Sars currently relies on a narrow tax base, with only 13.2% of the Personal Income Tax population producing more than 50% of SA’s total tax collections. That is not sustainable and presents a concentration risk for Sars. Sars cannot squeeze more tax from a stagnant tax base, with many people not even paying tax because they fall below the tax threshold. Sars' focus (as continued by Sars' new Commissioner, Dr Johnstone Makhubu) is clear: to broaden the tax base and zoom in on provisional taxpayers, especially those who use trusts and receive income. This will be done by focusing on non-compliance. The recent introduction of penalties for trust non-compliance demonstrates Sars' plan. It is therefore important to understand why Sars has reversed the first penalties issued for non-compliant trustees, given its focus on trusts.
Delinquent trustee
For years, trustees have become accustomed to holding only the title of trustee, without fulfilling their fiduciary duties, which are the legal obligations of trustees to act in the best interests of beneficiaries - the highest legal obligations of good faith, loyalty, and care. Why this neglect? Over the years, there were hardly any consequences for non-compliance with their legal duties, including the requirement to register the trust as a taxpayer and submit annual tax returns.
Although Sars has been actively planning and communicating the imminent introduction of penalties for non-compliance by trustees (the last taxpayers, since penalties for individuals’ and companies’ non-compliance were introduced in 2009 and 2018, respectively) since 2024, trustees chose to turn a blind eye and were probably hoping to maintain the status quo. That is unfortunately catching up with them, even though Sars communicated that they were willing to write off the first wave of penalties issued in May 2026, an interim relief.
Why did Sars write it off?
In December 2025, after Sars confirmed its ability to implement system changes to administer the new penalties, it issued two critical communications to initiate and enforce administrative penalties against non-compliant trusts. Firstly, the Draft Notice for Public Comment, which was published on 3 December 2025. It proposed fixed-amount monthly penalties for trusts that fail to submit their income tax returns, starting with outstanding 2024 and 2025 tax returns. Secondly, the Media Release: Trusts Filing 2025/2026 filing reminder was issued on 15 December 2025. This served as a strong reminder of the tax season and filing deadlines, making it clear that trusts would face rigorous non-compliance penalties.
Sars waited until the deadline (January 20, 2026) for trusts to submit their 2025 tax returns and, as with companies, began issuing final demand letters to trustees in February 2026, referencing the public notice and requesting overdue income tax returns. Trustees had 21 business days from the issue date of the final demand to submit 2024 and/or 2025 trust tax returns. Unfortunately, the letters were issued before the penalties were gazetted. Only on March 27, 2026, was a public notice issued, listing the non-submission of income tax returns by trusts as an instance of non-compliance subject to an administrative non-compliance penalty under section 211 of the Tax Administration Act of 2011.
Sars relied on the final demand letters already issued and did not issue fresh letters after the public notice. This was not aligned with prevailing legislation. Sars issued a communication stating that, given the level of non-compliance, they would allow trustees two more months to become compliant and would only begin issuing penalties from May 4,2026. When Sars began issuing penalties, the industry challenged Sars, arguing that Sars could not rely on the prematurely issued letters. Sars then communicated this week that they would reverse the penalties as requested.
Sars' plan
Sars is clearly agitated by the turn of events, having formally announced penalties almost eight months ago and already allowed two additional months (March and April) for trustees to regularise these matters. In its letters issued this week, Sars stated that it will issue a new Final Demand Letter and proceed with administrative penalties only in accordance with the applicable legal requirements. Sars encourages trustees to submit any outstanding Trust Income Tax Returns. It appears there is no more hiding away, as the new Final Demand Letters will be valid.
Given that Sars had no option but to apply the law correctly and reverse the initial wave of penalties, it is to be expected that they will now apply the law firmly and penalise non-compliant trustees. It is anticipated that Sars may, in future, adopt the same process used with individuals and companies to penalise trustees, even if only a single historic tax return remains outstanding. No registered trust with the Master is exempt, regardless of whether trustees label it as a “dormant” or “passive” trust.
Risk for trustees
Sars relies on details of registered trusts from the Master and third-party data providers, such as banks, to identify unregistered trusts. According to Makhubu, “Data is the lifeblood of a tax administration, and we want to use data to zone into trusts and ensure they are as compliant as they can be”. He added that “if compliance still does not come through, then we have to enforce responsibly, and we do intend to heighten our integrated enforcement going forward”. If a representative taxpayer fails to settle tax obligations, Sars can hold them liable in both their official and personal capacities.
Sars may even impose personal liability under Section 155 of the Tax Administration Act in certain circumstances, such as when the trustees pay themselves, beneficiaries, or other creditors rather than Sars, leaving the trust indebted to Sars; or when they engage in fraudulent activities, such as dissipating trust assets (moving or hiding funds) to avoid paying Sars.
This risk persists even if the trustees engage a tax practitioner, accountant, or administrator, as they remain legally liable for the trust’s tax obligations.
Trustees, accountants and other trust service providers should take Sars seriously and treat the trust as a vehicle that requires much more detailed compliance and paperwork than any other taxpayer. Avoid being caught by Sars.
Moreover, trustees should take their roles seriously and actively manage trusts daily in line with trust legislation. Trustees should also not lose sight of the fines now imposed for non-compliance under the amended Trust Property Control Act. Traditional, manual processes can no longer suffice.
* 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.
PERSONAL FINANCE