Key lessons for trustees from the Sars tax case

HISTORICALLY, trusts’ financials, if they were prepared, did not receive the attention they deserved from trustees.

- PHIA VAN DER SPUY

Typically, under pressure from often unforeseen deadlines, it was left to the accountant to make do with bank statements, if they existed for the trust, or to literally compile the trust’s financial statements on a one-page journal, massaging the numbers until they appeared satisfactory.

The loan account usually serves as the balancing entry to balance the figures. Clearly, no supporting documents, such as resolutions and loan agreements, were in place, and the accountant had little understanding of the trust’s affairs to enable them to question or interrogate the numbers. In a tax case, Taxpayer D v CSars (IT 35476), in which the Johannesburg Tax Court delivered judgment on 5 February 2025, a taxpayer ended up owing a substantial amount of taxes, an understatement penalty, interest, and legal costs to Sars for the years of assessment 2014 to 2017 (a four-year period).

Various companies were involved, with loans made to and from the taxpayer. A company belonging to the taxpayer showed an amount payable to the taxpayer of R 42 million. Sars asked the taxpayer to explain the source of the R 42 million advanced to the company and why it should not be taxed by Sars as undeclared income earned by him, which enabled him to advance the amounts to the company. During the case, in an attempt to reduce the amounts payable to Sars, the taxpayer changed his narrative and asserted that the loan amount should actually be only R 3 million instead of the initial R 42 million.