When you read this article, you may very well have just experienced a horror tax submission period (if you have fully complied with the new tax requirements) for trusts. Even though many people believe that the new requirements of the South African Revenue Service (SARS) are outrageous, the message from SARS has been clear: ‘You tell us trusts are managed properly in South Africa; then just submit the evidence with your tax returns’.
All of a sudden paperwork for trusts is more important than ever − resolutions, minutes of meetings, up-to-date information on all the role-players in the trust, financial statements, asset register, trustees’ interactions with accountable institutions, etc. And the biggest challenge is to ensure it all ties up! The paperwork trustees are required to produce on a timely basis drowns the average (often layperson) trustee.
The relationship already lies with the accountant, but …
When you speak to the average client, they maintain (rightly or wrongly) that their accountant has everything under control as far as their trust is concerned, be it trust compliance, administration, accounting, or taxation. When you speak to the accountant, however, the standard answer is ‘but we do not provide any trust administration to our clients’.
Some accountants do not know what you refer to when you speak about active trust administration services. Clearly, there is a misunderstanding which the accountant and their client may regret − the client may end up with a fine and/or imprisonment and penalties imposed by SARS and the accountant may suffer reputational damage and may even be pursued by their client for damages.
Some accountants formally or informally provided trust services, but never charged for it, as the industry was of such a nature that South Africans never paid for any trust services and the accountant was just too scared to charge, as the clients’ price sensitivity would (apparently) let them move all their business elsewhere where they would receive the services for free. Similar to any other free services, the state of trust compliance in South Africa is not surprising – only 30% of trusts are registered as taxpayers with SARS (even though it is a legal requirement for a trust to register as a taxpayer), and of those, a fraction submit their tax returns on time (trust tax returns are on average seven years behind).
Apart from the fact that accountants are now forced to manage their risk (reputational and/or commercial), a huge business opportunity presents itself to accountants, as a client (most of the time) have the strongest relationship with their accountant, compared to any of their other professional service providers.
Which services do trustees require?
The starting point for the accountant is to understand which services a (often layperson) board of trustees requires:
- Firstly, the accountant can provide ‘statutory’ services such as the registration of new trusts, trust deed amendments, trustee changes, etc. A professional must provide this type of service in line with the latest legislation and legal precedent.
- Secondly, the accountant can provide active trust administration services. It can be described as the active handholding of (often layperson) trustees. It includes the following:
- Trust deed execution − In most instances, the trust deed is ignored by the trustees. This is the constitutive charter of the trust, and the accountant can assist the trustees to implement the provisions of the trust deed and meet any specific requirements stipulated in the trust deed.
- Preparation of resolutions before transactions take place − The days of retrospective preparation of resolutions are counted. SARS indicated that they would employ AI to determine the actual date it was created. The accountant should avoid the temptation to assist clients to backdate any trust documents, as they may be caught out.
- Setting up meetings and finalising minutes of meetings − Accountants should also avoid preparing these documents as if a meeting took place in the past when it in fact did not take place
- Ongoing preparation and submission of the required ‘beneficial owner’ registers in a real-time fashion for the Master of the High Court − Trusts are required to submit these reports as and when any required information changes for any ‘beneficial owner’. This is different from companies who only have to submit a ‘beneficial owner’ register once a year to CIPC, with the companies’ annual return. Even though many so-called professionals provide the (standalone) service to submit a once-off ‘beneficial owner’ register and create the impression that this ticks the compliance box, it is the biggest disfavour they can do to the client. Not only is there a requirement to submit real-time ‘beneficial owner’ information to the Master (10 of the 14 required items), but the Regulations require the trustees to maintain a real-time record of all 14 required items per ‘beneficial owner’.
- Preparation and ongoing updating of the accountable institution (as defined in the Financial Intelligence Centre Act) register that trustees have to keep up to date in a real-time fashion. All of a sudden it is expected of trustees to become FIC ‘experts’ as they need to understand FIC concepts such as ‘agent’, ‘services’, ‘single transaction’ and ‘business relationship’ and apply that to keep an accurate up-to-date register.
- Preparation and maintenance of confirmations to accountable institutions of the trustees dealing with them in their capacities as trustees − The discipline to meet this requirement is key. Many are still of the view that only banks are accountable institutions. The list of accountable institutions has been expanded substantially and includes the estate agent that the ‘controlling’ trustee often approaches alone without the knowledge of the other trustees, attorneys, anybody dealing in high-value goods (a business that sold / has stock items of R100 000 or more − this includes motor vehicle dealers, jewellers, etc). Two of the three new measures that attract fines of up to R10 million or five years’ imprisonment deal with trustees’ interactions with accountable institutions; ‘beneficial owner’ registers are but one of the three.
- Preparation and maintenance of trust transaction documents (including invoices, contracts, etc).
- Dealing with ongoing Master requirements.
- Creating and updating an asset register for the trust as required by the Trust Property Control Act.
The accountant basically assists the board of trustees in demonstrating the active participation of all trustees in the trust, in conformity with the trust deed and the law.
- Thirdly, some accountants act as independent trustees on their clients’ trusts. Since March 2017, every new ‘family business trust’ requires the appointment of an independent trustee. The accountant should be mindful that they may be exposed to increased risk after increased measures are introduced.
- Fourthly, trustees require the services of a properly experienced tax practitioner to guide the trustees regarding taxes payable on income and capital gains generated in the trust. This is a complicated field as a trust is a taxpayer of last resort, with donors/funders and beneficiaries who may be liable for tax rather than the trust. The tax practitioner who does not provide trust administration services as described above would probably have to charge their clients more to merely submit a trust tax return, as they would have to do the run-around to obtain the required information to submit to SARS. Accountants acting as ‘Representative taxpayers’ should be mindful that they submit accurate, complete information and that they can truthfully sign the following declaration on the trust tax return:
- The information furnished in this return is to the best of my knowledge both true and correct.
- I have disclosed the gross amounts of all income received and/or accrued to this trust during the period covered by this return.
- I have the necessary financial records and supporting schedules to support all declarations on this return which I will retain for audit purposes.
An opportunity for the accountant
Whichever of these services the accountant decides to provide, it is critical to communicate to the client which services would be provided. If the accountant does not provide one or more of the services explained above, the client would most probably have to go elsewhere to get the services. This may be an opportunity missed by the accountant.
The accountant already has the relationship and can easily unlock additional income streams through the provision of trust services, as long as it is done in a risk-controlled fashion. With all the new trust measures introduced, South Africans have gotten used to paying for trust services, otherwise, they may get what they pay for – penalties and fines!
Author
Phia van der Spuy is a chartered accountant with a master’s degree in tax and is a registered fiduciary practitioner of South Africa, a chartered tax adviser, a trust and estate practitioner (TEP) and the founder of Trusteeze, provider of a digital trust solution.
