A recent ruling by the Johannesburg Tax Court has sent a powerful warning to trustees, funders, and high-net-worth individuals: poor record-keeping and vague financial narratives will not shield you from SARS scrutiny. 

The case, Taxpayer D v CSARS (IT 35476), involved a taxpayer who failed to justify the origin of R42 million advanced to a company under their control. SARS deemed the amount undeclared income and, after further investigation, assessed the taxpayer on a total of R57.1 million — including R20 million in interest income linked to shareholder loan accounts.

The taxpayer’s attempt to revise the loan amount to R3 million mid-trial was rejected by the court, which found the explanation unconvincing. Notably, the taxpayer did not testify, relying solely on legal and accounting representatives. The court’s judgment emphasized that unsupported claims and retrospective adjustments are insufficient when facing SARS’s increasingly data-driven enforcement. 

This case underscores several critical lessons: 

• Documentation is non-negotiable: Trustees must maintain clear, consistent records, including resolutions, loan agreements, and financial statements. 

• Accountability cannot be outsourced: Trustees and funders must understand the financial affairs of their trusts and companies, rather than relying entirely on advisors. 

• Transparency is essential: SARS is intensifying its focus on complex trust structures and inter-company loans, especially where transactions appear circular or opaque. 

With SARS ramping up verification efforts and trust tax return scrutiny, this case serves as a cautionary tale. As tax season begins, clients are urged to review their structures and ensure compliance before SARS comes knocking.