SARS has published the notice requiring trusts and section 18A entities to file third-party returns, which will be used to pre-populate tax returns.
On 30 June 2023, the South African Revenue Service (SARS) published a new notice of returns of information to be submitted by third parties (Notice). In addition to existing listed persons, SARS now requires trusts and section 18A(1)(a) to (c) entities that issue section 18A receipts for their tax-deductible donations (18A entities) to file third-party returns.
The Notice requires trusts to report on any amounts vested in a beneficiary, including net income, capital gains and capital amounts on their IT3(t) returns. For 18A entities, the Notice requires amounts donated to the entities for which section 18A receipts were issued and all required information on the receipts to be reported on their IT3(d) returns.
Third-party returns are used by SARS to, amongst others, pre-populate tax returns. The detail of how, where, and what to submit in a third-party return is covered in a SARS document called the “Business Requirement Specification IT3 Data Submission for third-party returns (BRS)”. The BRS for 18A entities can be found here, and for trusts here.
The draft version of the Notice published on the SARS website for comment on 29 March 2023 included a requirement for persons that issue solar installation certificates of compliance for new and unused solar panels at a residence used solely or mainly for domestic purposes to submit returns, but this was excluded from the final published Notice.
A resident trust or a non-resident trust which is required to submit an annual income tax return is required to file third-party returns to SARS unless it is a collective investment scheme (CIS) or an “Employment Share Incentive Scheme Trust” (ESIST).
As the Notice only provides for two specific exclusions, i.e. a CIS and an ESIST, this means that all other trusts which do not fall within these exclusions would have to submit third-party returns. Trusts such as community trusts, family trusts, special trusts under the ITA, business trusts, or settlement trusts will thus need to file third-party returns to SARS.
According to the BRS, the ITR3(t) for trusts requires the following information:
- demographic information of the reporting trust;
- demographic information of trust persons/beneficiaries;
- taxable amounts distributed or vested to beneficiaries;
- details of non-taxable income distributed; and
- trust financial flows.
The Notice provides that the ITR3(t) for a trust will need to be submitted by 31 May of each year in which the trust tax year ends. For resident trusts, the trust tax year coincides with the year of assessment for individuals, which is the last day of February. This means that the first submission of the ITR3(t) for trusts will be for the 2024 year of assessment, with the first ITR3(t) due by 31 May 2024. This due date is three months earlier than the annual 30 September due date proposed in the draft Notice.
Notably, the due date for IT3(b) and IT3(c) returns which report interest, dividends, and capital gains or losses to SARS is also 31 May, the same due date as the IT3(t) for trusts. A practical question arises as to how trustees would be in a position to report amounts vested in a beneficiary in the IT3(t) for the year if the trustees have not received the IT3(b) and IT3(c) certificates on interest, dividends and capital gains or losses received or accrued by their trusts in that year.
The 18A entities include public benefit organisations (PBOs), PBOs that fund other PBOs, a closed list of United Nations and similar entities, and any government department approved by SARS to carry out public benefit activities. The Notice requires 18A entities that receive tax-deductible donations and issue section 18A receipts to file the IT3(d) returns.
The Notice provides that the 18A entities will be required to file the ITR3(d) third-party return twice a year. For the period from 1 March to 31 August, the ITR3(d) must be submitted by 31 October, and for the period from 1 March to the end of February the ITR3(d) must be submitted by 31 May. The Notice then states that the 18A entities will not be required to submit a return for the period from 1 March 2023 to 31 August 2023. This means that the first ITR3(d) for 18A entities will be due by 31 May 2024 for 18A receipts issued from 1 March 2023 to 29 February 2024.
We anticipate that the relevant information for the ITR3(d) on the reporting entity, donor entity, and section 18A receipt information could include:
- PBO name, address, PBO number and any registration number (depending on type of entity);
- date of receipt of donation;
- type of donor;
- donor’s name and identification or registration number;
- donor’s address and contact number;
- donation amount;
- SARS income tax registration number of the donor.
The SARS third-party data submission webpage states that volunteers who are currently testing the submissions of IT3(d) and IT3(t) can submit these returns from 18 September 2023. The Notice refers generally to the electronic submission of these returns. However, the previous notice referred to the submission of 20 or fewer records via eFiling, 21 to 50 000 records via the Hypertext Transfer Protocol Secure (https) bulk data filing service (see Guide), and more than 50 000 records via Connect Direct™ bulk data filing. The BRS states that, in future, records can also be submitted using the Application Programming Interface. Further clarity on method of data submission should be provided by SARS on the webpage at a later stage.
Increased compliance burden
SAICA had submitted various comments on the draft Notice to SARS including the proposal that SARS considers implementing the reporting responsibility for taxpayers above certain thresholds, phasing in the reporting obligations over a few years, updating the Guide, and providing training to PBOs and trustees on data submissions. The third-party data submission process is complex, particularly for large volumes of records to be submitted using https.
The compliance burden for public officers and representative taxpayers of trusts and 18A entities such as PBOs that issue section 18A certificates has become more onerous with the Notice. We urge taxpayers to seek assistance where required.