Historically, trusts could distribute income and capital gains to non-resident beneficiaries, who would then be taxed at their own marginal rates. This was based on the conduit pipe principle, which allowed income to retain its nature when passed through a trust.

Effective 1 March 2024, this principle is now limited to South African resident beneficiaries only.

For non-residents, income and capital gains are taxed in the hands of the trust at the applicable trust rates (e.g., 45% for income, 36% for capital gains).

In response to the Financial Action Task Force (FATF) and global anti-money laundering standards, South Africa amended the Trust Property Control Act via the General Laws Amendment Act (effective April 2023).

Trustees are now required to:

• Identify and record all beneficial owners of the trust.
• Maintain up-to-date records and lodge them with the Master of the High Court.
• Disclose trust involvement in transactions with accountable institutions.

Non-compliance can result in fines up to R10 million or imprisonment.

From 1 March 2025, trusts may claim foreign tax credits on income or capital gains earned abroad. These credits:

• Must not exceed the portion of South African tax related to that income.
• Can be carried forward for up to six years if unused.

Claim foreign tax credits subject to the above limitations.

The statutory definition of a trust now includes:

• Portfolios of collective investment schemes
• Portfolios of hedge fund collective investment schemes

This broadens the scope of entities subject to trust tax rules.

SARS has tightened compliance around trust tax returns:

• All trusts, even dormant ones, must file ITR12T annually.
• Third-party data returns (IT3(t)) must be submitted for amounts vested to beneficiaries.
• Trustees must submit supporting documents like trust deeds, financial statements, and beneficial ownership organograms.

Late payment penalties and interest apply on late submissions.

SARS continues to scrutinize low/interest-free loans to trusts or related companies. Section 7C of the Income Tax Act:

• Triggers donations tax on such arrangements – the difference between the interest charged and the official SARS rate is treated as a deemed donation. The donation is deemed to occur on the last day of the trust’s year of assessment (usually 28/29 February).
• Applies even when loans are made to companies controlled by trusts or their beneficiaries.

This deemed donation is subject to Donations Tax (typically 20%, or 25% for amounts exceeding R30 million).