While the FATF has acknowledged the significant progress made by our government in addressing the recommendations highlighted in its Mutual Evaluation Report of October 2021, it has identified several areas of deficiency in relation to the effective implementation of South Africa’s AML/CFT laws. The FATF is of the view that further improvements are needed to rectify inadequacies in the fight against financial crime.
South Africa has fast-tracked several legislative interventions to help address these shortcomings. In the context of trusts, which have long been regarded as potential vehicles for tax evasion, money laundering and even terrorism financing, the TPCA has been amended to include onerous new reporting obligations of trustees.
The amendments, which came into effect on 1 April 2023, set out a new definition of the term ‘beneficial owner’. A beneficial owner now includes the founder of the trust, all trustees as well as all beneficiaries mentioned by name in the trust instrument. If any of these parties is a legal person such as a company, it must be established who the natural person or persons are who effectively control or own that company.
In terms of Section 11A(1) of the TPCA, the trustees must:
- Establish and record the beneficial ownership of the trust
- Lodge a register of such information with the Office of the Master of the High Court
- Ensure that such information is kept up to date.
Section 10(2) of the TPCA stipulates that trustees:
- Must disclose their position as trustee to any accountable institution with which the trust engages
- Make it known to the accountable institution that the relevant transaction or business relationship relates to trust property.
As the representative taxpayers of a trust, trustees also have to report to the South African Revenue Service at the end of September of each year on the following:
- The demographic information of the trust
- The demographic information of the beneficial owners
- Taxable amounts distributed or vested in beneficiaries
- Details of non-taxable income distributed
- Trust financial flows
- All donations and loans.
The onus for all this additional reporting falls on the trustees, and failure to comply is a criminal offence punishable by up to five years’ imprisonment or a hefty fine of R10 million. These harsh punitive measures are indicative of the hard-line approach our government is taking with regard to non-compliance.
These are indeed sweeping changes to the South African trust landscape, and it is imperative that trustees understand everything that is required of them. It’s therefore crucial to ensure that your trust has an independent, professional trustee who understands and is equipped to deal with these changes.
A corporate trustee such as Sanlam Private Wealth will see to it that the proper systems are in place to ensure compliance on behalf of our clients. Please do not hesitate to contact Kajal Chowthee on +27 (31) 560 3666 or firstname.lastname@example.org for more information on our independent trustee services and how we can assist.