Source: SARS’ Comprehensive Guide to the Income Tax Return for Trusts—External Guide, Revision 22, effective 12 December 2024
The date for the Trusts filing season was 16 September 2024 to 20 January 2025 for provisional and non-provisional taxpayers. The annual notice, issued by the Commissioner, requires all Trusts to submit a Trust tax return.
The purpose of this article is to provide an overview of the completion of the Income Tax Return for Trusts (ITR12T), list recent changes made by SARS, and the accompanying legislation. Please ensure that you have read part 1 before proceeding with part 2.
Voluntary Disclosure Programme (VDP)
a) The purpose of the VDP is to allow taxpayers an opportunity to regularise their tax affairs with SARS.
i) Taxpayers must voluntarily apply to SARS to disclose their defaults or non-compliance.
ii) A VDP application number will be allocated by SARS.
iii) Once the VDP application has been evaluated by the VDP Unit and where voluntary disclosure relief is granted, a written agreement will be concluded between the taxpayer and SARS in order to affect the necessary assessments.
iv) Should you require more information, please refer to the Comprehensive Guide concerning VDP, which is available on the SARS website www.sars.gov.za.b) If you have applied for voluntary disclosure:
i) Please insert the VDP application number in the field provided on your return.
ii) Note that the VDP application number completed must be for an approved VDP agreement between SARS and the Trust.c) When completing your return, remember to include all income and expenditure applicable for the tax year as per the VDP agreement concluded with SARS.
Note: A VDP submission may not result in a credit/refund due by SARS.
If the assessment results in a credit/refund, the return will be rejected. Please contact the VDP unit for further assistance.
DIVIDENDS DEEMED TO BE INCOME I.T.O. S8E AND S8EA
a) Sections 8E and 8EA of the Income Tax Act were amended to include any right or interest where the value of that right or interest is directly or indirectly determined with reference to a share, or an amount derived from a share, i.e., equity instruments treated as hybrid instruments. The effect of the amendment is that dividends received by persons i.r.o. those equity instruments must be deemed to be income.
LOCAL CAPITAL GAIN/LOSS
a) Capital Gains Tax (CGT) provisions became effective from 1 October 2001. The Eighth Schedule of the Income Tax Act determines a taxable capital gain or assessed capital loss and section 26A of the Income Tax Act provides that a taxable capital gain is included in taxable income.
b) A CGT event is triggered by the disposal (or deemed disposal) of an asset. Only the gain or loss attributable from 1 October 2001 to the date of disposal will be subject to the CGT.
For more detailed information, please refer to the ‘Comprehensive Guide to Capital Gains Tax’ available on the SARS website.
i) An asset is defined as widely as possible and includes any property of any nature and any interest therein.
ii) A disposal covers any event, act, forbearance, or operation of law, which results in a creation, variation, transfer, or extinction of an asset. It also includes:
A) The sale, donation, expropriation, conversion, grant, cession, exchange or any other alienation or transfer of ownership of an asset;
B) The forfeiture, termination, redemption, cancellation, surrender, discharge, relinquishment, release, waiver, renunciation, expiry, or abandonment of an asset;
C) The scrapping, loss, or destruction of an asset;
D) The vesting of an interest in an asset of a Trust in a beneficiary;
E) The distribution of an asset by a company to a holder of shares;
F) The granting, renewal, extension, or exercise of an option; or
G) The decrease in value of a person’s interest in a company, Trust or partnership of value-shifting arrangement.c) Once an asset is disposed of, the amount that is received by (or which accrues to) the seller of the asset constitutes the proceeds/income from the disposal.
d) The base cost of the asset is generally the expenses that were actually incurred in obtaining the asset, together with the following:
i) Expenses directly related to the asset’s improvement.
ii) Expenses and direct costs in respect of its acquisition and disposal of the asset.
iii) Certain holding costs.
iv) Note: The base cost does not include any amounts otherwise allowed as a deduction for income tax purposes. e) The annual exclusion will be applied programmatically by SARS, and you are therefore not required to complete this ‘exclusion’ on the return.
i) The annual exclusion of a natural person and a special Trust type a) (referred to in section 1(1) paragraph (a) of the definition of “special Trust”) is R30 000 for the 2016 year of assessment and R40 000 from the 2017 year of assessment to date.
ii) During the assessment process, all capital gains and/or losses are added together, and thereafter the sum of such capital gains and losses is reduced by the annual exclusion, limited to the amount of the gain/loss.
iii) Where a natural person dies during the year of assessment, the annual exclusion is increased to R300 000.
iv) The exclusion applies to gains as well as losses.
v) The unutilised portion of the annual exclusion cannot be carried forward to a following year of assessment. f) The inclusion rate was 66.6% for the 2016 year of assessment and 80% from the 2017 year of assessment to date.
i) Where a net capital gain for the current year of assessment has been determined, such amount is multiplied by the inclusion rate to determine the taxable capital gain.
ii) The result is included in the taxable income for that year of assessment.
iii) Note: this calculation is done programmatically during the assessment process.g) A capital loss can only be offset against a capital gain and not against normal taxable income. A capital loss can’t be vested/distributed to a beneficiary.
h) The capital gain/loss must be determined by calculating the difference between the “Proceeds” and “Base Cost” (after considering Exclusions/Adjustments and Rollover base cost).
Examples of operational matters
Farming Operations
a) The record retention periods contained in sections 29 and 97 of the Tax Administration Act have been adjusted in line with the time periods set out in paragraph 13 of the first schedule.
b) The Commissioner may, notwithstanding the provisions of sections 99 and 100 of the Tax Administration Act, raise an assessment for any year of assessment with respect to which a deduction in terms of subparagraph (1) is allowed. Where a deduction in terms of subparagraph (1)(a) or (b) may be claimed in respect of a year of assessment, the period prescribed under section 29(3) of the Tax Administration Act after which records, books of account, or documents need not be retained shall be extended to six years or eleven years, respectively, for such year of assessment. Where a deduction in terms of subparagraph (1)(b) may be claimed in a year of assessment, the period prescribed under section 97(4) of the Tax Administration Act after which a record of assessment may be destroyed shall be extended to eleven years for such year of assessment.”.
c) The “Income from Local Farming Operations (IT48)” will be updated to allow the taxpayer to select if a relevant paragraph in the First Schedule to the Income Tax Act applies.
Foreign Farming Income
a) This applies if you selected ‘Y’ to the question “Indicate the type of foreign income received/accrued to the Trust: Farming” on the tax form wizard of the return.
b) All income derived directly from any foreign farming operations will be regarded as foreign farming income. Income from foreign farming activities will also include, for example, grazing fees derived by a person who carries on farming in a foreign country.
Enhanced Renewable Energy Deduction—s12BA
a) This is mandatory if the value captured in the field “Enhanced machinery, plant, implements, utensils, and articles used in the production of renewable energy deduction—(s12BA)” in the subcontainer “Special Allowances Not Claimed in the Income Statement” of the main container “Local Business and Trading Income including crypto asset(s) (Excluding Rental Income from the letting of fixed property and farming income)” is greater than zero.
DONATIONS
Donations allowable in terms of Section 18A to approved organisations
a) Section 18A is amended so that additional information will be required as the Commissioner may prescribe by public notice.
b) The donation amount will only qualify as a deduction if the receipt is issued to approved public benefit organisations in terms of section 18A of the Income Tax Act.
c) From the 2016 year of assessment, if the Trust made donations to more than twenty Public Benefit Organisations (PBO’s), then the details of the top twenty PBO’s (i.e., to whom donations with the highest monetary value were made) must be completed on the return.
FOREIGN TAX CREDITS—Refunded/Discharged
a) This applies from the 2017 year of assessment onwards.
b) The allowable foreign tax credit was changed from a tax credit to a rebate to comply with the Income Tax Act.
c) A s6quat deduction reduces the taxable income of a South African resident. This in turn reduces the normal tax liability of the taxpayer. Where a South African resident claimed a deduction for foreign tax paid/payable in terms of section 6quat and in a subsequent year of assessment the foreign tax was refunded or the taxpayer was discharged from the applicable tax liability, then the amount that was discharged (limited to the amount that was originally claimed) will be deemed to be an amount of normal tax payable by that taxpayer in the subsequent year of assessment.
CALCULATION OF THE QUALIFYING SECTION 12H LEARNERSHIP ALLOWANCE FOR THIS YEAR OF ASSESSMENT IN RESPECT OF AGREEMENTS ENTERED ON OR AFTER 1 OCTOBER 2016
a) Section 12H has been extended to 1 April 2024.
b) The learnership incentive is intended to encourage skills development and job creation. The following tax deductions will be considered in respect of the entering and completion of such registered learnership agreements as defined in s12H of the Income Tax Act.
i) Persons without a disability:
A) NQF 1-6 = R40 000.
B) NQF 7–10 = R20 000.
ii) Persons with a disability:
A) NQF 1-6 = R60 000.
B) NQF 7-10 = R50 000.BENEFICIAL OWNERSHIP AND TRANSPARENCY (BOT)
a) An additional container for “Beneficial Ownership” is included on the Trust Return (ITR12T); SARS’ aim is to record all beneficial owners of Trusts who would gain financially from the proceeds of the Trust to comply with the Financial Action Task (FATF) requirements.
b) The Trust Property Control Act (57 of 1988) provides that all beneficiaries who can be identified by name must be reported as Beneficial Owners (BO). Therefore, those beneficiaries who can be identified by name will have to report in terms of the BO reporting requirements. The moment a Trust benefit is vested (distributed) in a particular beneficiary (they are identified by name), their details must be reported for BO purposes.
c) In this regard, certain information must be submitted to SARS via e-Filing, i.e., a copy of the Trust instrument, letters of authority, etc. These documents may include, but are not necessarily limited to, the following:
i) An organogram, illustrative, or schematic diagram depicting effective control of the Trust. Where the beneficial ownership is in the form of other legal arrangements or legal entities, this should be provided in a separate attachment.
ii) Compile an Excel Spreadsheet with the beneficiaries’ details (as per BO requirements) and then submit/upload the Spreadsheet as a separate document; or
iii) Such other document(s), which will elaborate on beneficial ownership in relation to the Trust.d) With regards to the capture of beneficial ownership information, it is mandatory for the current year’s return that at least one document be submitted that relates to beneficial ownership information.
i) A maximum of 20 beneficial owners per category can be captured on the “Beneficial Ownership Declaration” from 2023 onwards.A) For the remainder, a schedule should be attached that provides detail (as required) of the remainder of the beneficial owners.
B) Note that this schedule is mandatory even if the beneficial owners are less than 20, and where the beneficial owner is a legal entity or other legal arrangement, the schedule should provide sufficient detail to identify the natural person (“warm body”) behind the entity.
e) To complete unnamed beneficiaries, select the “Other” option and provide the following information.
i) The description as per the Trust instrument of the unnamed beneficiaries
ii) A short description of what is meant by this category of beneficial ownersf) All fields on the Beneficial Ownership Details container will be pre-populated with the previous year’s return information.