IT12 Trust Reportable Arrangement

 

 

Yes. A trust can be a “participant” in a reportable arrangement and will then have a mandatory disclosure obligation under sections 34–39 of the Tax Administration Act (TAA).

 

- “Reportable arrangement” means an arrangement referred to in TAA s35(1) or s35(2) that is not an excluded arrangement under s36.  

- “Participant” (who must disclose) includes: 

  - the promoter; 

  - a person who will (directly or indirectly) derive a tax benefit or financial benefit from the arrangement; or 

  - a person party to an arrangement listed by the Commissioner in a public notice under s35(2).  

- A “tax benefit” is the avoidance, postponement, reduction or evasion of a liability for tax.  

 

An arrangement is reportable if a participant is involved and it meets any of the s35(1) triggers, for example: 

- fees/interest/finance costs depend (wholly/partly) on assumptions about the tax treatment of the arrangement;  

- it has characteristics contemplated in ITA s80C(2)(b) (or substantially similar);  

- it creates a book/tax mismatch (deduction for Income Tax but not an expense for financial reporting, or vice versa);  

- it lacks a reasonable expectation of pre-tax profit, or the pre-tax profit is less than the present value of the tax benefit.  

It is also reportable if the Commissioner lists it in a public notice under s35(2).  

 

Certain arrangements may be excluded (e.g. certain stand-alone debts, leases, regulated exchange transactions, CIS transactions), but exclusions do not apply if the arrangement is entered into mainly to obtain/enhance a tax benefit or structured to enhance a tax benefit.  

 

- A participant must disclose the prescribed information within 45 business days:

  - after the arrangement qualifies as reportable (if already a participant), or 

  - after becoming a participant (if joining later).  

- SARS may grant an extension of a further 45 business days if reasonable grounds exist.  

- A participant need not disclose if it obtains a written statement from another participant confirming that the other participant has disclosed the reportable arrangement.  

 

The disclosure must include (in the prescribed form/manner and by the specified date), among other items: 

- a detailed description of all steps and key features; 

- a description of the assumed tax benefits; 

- names/registration numbers/addresses of all participants; 

- a list of agreements; and 

- any financial model reflecting the projected tax treatment.  

 

After SARS receives the information, SARS must issue a reportable arrangement reference number to each participant (for administrative purposes).  

 

If a participant/promoter fails to disclose as required by s37, SARS may impose a monthly penalty (up to 12 months):

- R50,000 per month (non-promoter participant/intermediary), or 

- R100,000 per month (promoter).  

This can be doubled if the anticipated tax benefit exceeds R5 million and tripled if it exceeds R10 million.  

 

SARS’ trust return guide confirms that trusts must answer whether the trust entered into a reportable arrangement in terms of TAA ss34–39, and if “Yes” the trust must complete the “Reportable Arrangement” section and capture the reportable arrangement number/reference number issued by SARS.   

The guide also flags features/questions such as round trip financing (s80D), offsetting/cancelling elements, and accommodating/tax-indifferent parties (s80E).