There are many common mistakes that are frequently made regarding the operation of trusts which could defeat the very ends for which the trust was established, i.e. to protect assets from creditors and potential tax savings, amongst other reasons.
SARS is increasingly focusing on trust tax returns, and indeed the tax return itself has been amended with effect from 12 October 2015.
Below are 7 tips on how to correct your trust:
- Enlist the services of a professional to scrutinise your trust deed to ensure compliance with the Trust Property Control Act.
- Confirm that your trust has at least one independent trustee.
- Ensure that the trustees are indeed complying with the trust deed.
- Open a bank account for the trust.
- Ensure that the minutes of meetings are recorded, signed and pasted in a minute book.
- Make sure that all resolutions pertaining to distributing, acquiring or disposing of assets are recorded in writing, signed and pasted in the minute book.
- Repayment of loan accounts and capital injections into the trust should be supported with the flow of cash through the trust’s bank account.
REMISSION OF THE PROVISIONAL TAX UNDERESTIMATION PENALTY
If one underpays provisional tax as a result of underestimation, SARS can impose a penalty. This penalty can however be remitted in certain circumstances. The Tax Administration Act indicates that in order to have the penalty remitted one must satisfy the Commissioner that the amount of any estimate was “seriously calculated with due regard to the factors having a bearing thereon and was not deliberately understated…”. The aforementioned indicates that the Commissioner is cognisant of the fact that there could be valid and practical reasons for the underestimation.
In order to prove that the calculation was “seriously calculated” it is important for tax practitioners to keep adequate working papers and supporting documents regarding how the amount was reached.
One can note further that a taxpayer may dispute the decision of SARS not to remit the underestimation penalty, as the penalty is imposed in terms of Chapter 15 of the Tax Administration Act, thereby allowing for the remedies under the Chapter to apply.
The calculation of the penalty can be found in the revised Interpretation Note 1: Provisional tax estimates (“IN1”) published by SARS.
Article summarised by C2M Compliance Office, Alida Hendrikse (BCom LLB | Admitted Attorney). Comments adapted from an article published online on 15 September 2015 by Sumesh Somaroo from BDO.