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Trusts that are registered within the Republic of South Africa stay one of the most functional and efficient ways of planning your estate and protecting your assets. However, it is crucial to highlight that trusts are also conditional upon stringent tax implications under the Income Tax Act, 58 of 1962 and the Tax Administration Act 28 of 2011.
Recently, the South African Revenue Service (“SARS”) has intensified monitoring and scrutiny over tax obligations within trusts, specifically income tax returns that have not been submitted, advantageous ownership disclosures, and compliance with trust administration.
From May 2026, SARS had officially started to implement administrative non-compliance penalties for trusts that do not submit their income tax returns as required to. Trustees of a trust are always required to ensure that there is full compliance with trust administrative obligations to avoid penalties and/or interest from SARS.
How are Trusts Taxed in South Africa?
Taxation on trusts are dependant on the income obtained within the trust and how the capital gains are handled during the year of the assessment.
There are two circumstances that ascertain the consequences of tax:
- Income kept within the trust or;
- Income that is distributed or vested in the beneficiaries.
Income kept within the trustWhen the income is kept within the trust and is not vested or distributed in the beneficiaries then, the trust shall be liable for that income. It must be noted that most discretionary trusts are taxed at a percentage of 45% as a flat rate, which is significantly more than most individual tax rates. Types of trust income may involve the following; rental income, investment income and business income, to name a few.
Income distributed to BeneficiariesOn the other hand, a trust may distribute, or vest the income in the beneficiaries of the trust within that specific tax year. There is a principle referred to as the “conduit principle” within South Africa where the income that is distributed or vested in the beneficiaries are to keep its nature and thus the beneficiary is to be taxed rather than the trust. This avenue may be beneficial as the beneficiaries may fall in a lower tax bracket than the trust itself.
Trustees are to ensure that these distributions are stated and referred to in the Trust Deed, that trustee resolutions concerning the matter at hand is concluded properly, that accounting records of the trust are always accurate and that beneficiaries declare the vested income in their tax returns.
Capital Gains Tax, Donation Tax and Estate Duty Considerations
Trusts are further subject to Capital Gains tax where there are assets within the trust that are being disposed of or sold for a profit. Such as in shares, investments and business interests.
Donation Tax occurs when funds and/or assets are transferred into a trust and individuals or trustees are not mindful of considering that donation tax is a factor. Donation tax is levied at 20% on donations up to R30 million and 25% on donations more than R30 million. However, there is an annual donation tax exemption for individuals in the amount of R100 000.
In terms of Estate Duty, trusts are mostly used by individuals for estate planning as assets that are transferred into a trust on most occasions fall outside of an individual’s deceased estate. Even so, where the founder of the trust keeps control over the trust or carries on attaining personal benefit from the trust assets, SARS can still investigate as to whether the assets are to still be included within the founder’s estate regarding estate duty.
Therefore, it is critical that proper administration of the trust is undertaken and that there should be the proper separation between the trust and the founder of the trust.
SARS Increases Trust Compliance Enforcement in the year 2026
On the 2nd of April 2026, SARS confirmed that penalties would be imposed for the non-submission of trust income tax returns.
Subsequently, on the 7th of April 2026, SARS issued communication to stakeholders stating that this penalty shall only be imposed from the 4th of May 2026, thus allowing trustees the time to ensure that their tax affairs is compliant and in order. SARS specifically requires that all trusts, even dormant trusts, are to submit annual tax returns if they are registered for income tax.
The Deregistration of a Trust
When a trust no longer continues to operate and has been terminated, the trust needs to be formally deregistered with SARS. There are particular requirements that are to be adhered to, including but not limited to submitting all outstanding tax returns. Consequently, should the trust not be deregistered properly with SARS, this might result in ongoing compliance obligations and penalties.
Where trustees are not certain of their obligations regarding their trust, outstanding returns, deregistration requirements or general trust taxation, it is advisable that an experienced legal practitioner and/or tax professional is consulted without delay.
For professional assistance with your trust, estate planning or any concerns regarding tax compliance, contact Van Deventer and Van Deventer Incorporated to schedule a consultation with our Litigation Team.
References
- SARS Trusts Guidelines
- Burger Huyser Attorneys: Understanding Trust Taxation
- SD Law: Family Trusts in South Africa
- Gov.za: SARS Trusts Obligation to Submit Income Tax Returns
- PM Attorneys: How is a Trust Taxed in South Africa
- The Income Tax Act No. 58 of 1962
- Tax Administration Act, No. 28 of 2011