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.

- PHIA VAN DER SPUY

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 noncompliance 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.