If you are a trustee of an inter vivos trust in South Africa, this question matters more than most people realise. Trustees regularly sign tax returns, manage trust income, and make distributions to beneficiaries, often without understanding the personal legal exposure that comes with those actions.
The short answer is yes: in certain circumstances a trustee can be held personally liable for a trust’s tax debt. And those circumstances are not as rare as you might hope.
The Trust Is a Separate Taxpayer, But That Has Limits
A trust registered with the Master of the High Court is treated as a separate taxpayer by SARS. It has its own income tax reference number, files its own returns, and is taxed on income not distributed to beneficiaries. In this sense, the trust’s tax obligations belong to the trust, not to you personally.
But that separation is not absolute. Section 155 of the Tax Administration Act 28 of 2011 specifically provides for situations in which the trustee becomes personally liable for the trust’s unpaid taxes. The practical reality is this: a trust is only as compliant as the trustees who run it. If the trust fails to file returns, under-declares income, or defaults on payments, and you were the trustee responsible, SARS has a direct route to hold you accountable.
When Can a Trustee Be Held Personally Liable?
Section 155 of the Tax Administration Act sets out the framework. A trustee can be held personally liable in the following circumstances:
You are in control of trust assets – If you have the power to manage and deal with the trust’s assets, SARS can require you to satisfy the trust’s tax debt from those assets.
You paid someone else instead of SARS – If assets under your control were used to pay a beneficiary, a creditor, or yourself while a tax debt was outstanding, you can be held personally liable for the lesser of what you paid away and what SARS is owed.
You failed to retain funds when notified – SARS may issue a notice under Section 179 of the Tax Administration Act requiring you to withhold a specified amount from trust funds. If you fail to comply, you are personally liable.
The trust is used to avoid tax – Where SARS determines that a trust structure was used to improperly shelter income, the general anti-avoidance provisions of the Income Tax Act allow SARS to restructure the tax consequences, potentially treating the income as yours personally.
Personal liability under Section 155 is not automatic. SARS must follow a process and issue a formal notice. But the risk is real, and non-compliance carries serious consequences.
Section 7C: The Hidden Ongoing Tax Exposure
Beyond direct liability, there is a second source of personal tax exposure that many trustees overlook entirely: Section 7C of the Income Tax Act.
Section 7C was introduced in 2017 to close a widespread planning strategy. Under the original trust model, a founder would sell assets to their trust and leave the purchase price outstanding as an interest-free loan. Section 7C changed that. If a loan to a trust bears interest below the SARS official rate (currently 7.75% per annum), the shortfall is treated as a deemed donation made by the founder each year, attracting donations tax at 20%, payable personally by the founder.
A practical example: An outstanding loan of R3,000,000 at 0% interest.
- Deemed annual donation: R3,000,000 x 7.75% = R232,500
- Less annual donations tax exemption: R232,500 – R100,000 = R132,500 taxable
- Donations tax at 20%: R26,500 payable personally, every year
This is not a trust liability. It is your personal obligation arising from the structure of your trust, and many founders only discover it when SARS raises assessments for multiple years of unpaid donations tax simultaneously.
The Attribution Rules: When Trust Income Becomes Your Income
Even where the trust is a valid, separately taxed entity, the Income Tax Act contains attribution rules in Sections 7(3) to 7(8) that can cause trust income to be taxed in your hands rather than the trust’s. The most relevant are:
Section 7(3), Spouse. Income earned by the trust that benefits your spouse is taxed in your hands.
Section 7(4), Minor children. Income earned by the trust that benefits your minor children is taxed in your hands.
Section 7(5), Revocable donations. If you retain the right to revoke a donation to the trust, the income remains taxable in your hands.
These rules mean that naming your spouse or minor children as beneficiaries does not automatically shift the tax burden. If the trust assets originated from you, SARS may look through the trust structure entirely and tax the income at your personal marginal rate, currently 45% at the top bracket.
The Sham Trust Risk
A trust that is not genuinely independent of its founder is treated by SARS, and by South African courts, as a sham. This is one of the most common problems SARS encounters when auditing inter vivos trusts, and the consequences are severe.
A trust is at risk of being treated as a sham if the founder controls all decisions unilaterally, no trustee meetings are held or minuted, the trust’s bank account and the founder’s personal account are used interchangeably, assets were never formally transferred into the trust, or the independent trustee’s role is purely nominal.
Where a trust is disregarded as a sham, all assets and income are treated as belonging to the founder personally. Every year of under-declared income and every asset that avoided estate duty becomes a personal tax liability, often with substantial penalties and interest added.
In a series of cases following Aitken v SARS, South African courts confirmed that the form of a trust structure is not sufficient. It must also function genuinely as a trust. Registration with the Master does not immunise a trust from challenge if the substance does not match the structure.
What Every Trustee Should Have in Place
The risk of personal liability is manageable, but only through deliberate, ongoing compliance:
Annual trustee meetings with formal minutes – A record of decisions made demonstrates that the trust functions genuinely and independently.
Separate trust bank account – The trust must have its own account used exclusively for trust transactions. Commingling with personal funds is one of the most common sham trust indicators.
An independent trustee – At least one trustee who is not the founder and who genuinely participates in decisions rather than simply rubber-stamping them.
Proper loan account management – If the founder has a loan account against the trust, the Section 7C position must be reviewed annually. Either charge interest at or above the official rate, or calculate and pay the donations tax liability each year.
Up-to-date tax filings – The trust’s income tax returns must be filed on time every year. A backlog of outstanding returns is both a compliance problem and a personal liability risk.
Know Your Exposure Before SARS Does
Trust taxation is one of the most technical and frequently misunderstood areas of South African law. If you are a trustee, or a founder who acts as trustee, understanding your personal exposure is not optional. The rules have tightened significantly over the past decade, and trustees who have not revisited their compliance position recently may be carrying risk they are entirely unaware of.
Executor Law is an incorporated firm of attorneys, not a firm of tax practitioners. Where a trustee’s matter involves tax filings, SARS assessments, or Section 7C calculations, we work closely alongside registered tax practitioners so that trustees and founders receive the legal and tax guidance their matter requires.
Executor Law advises trustees and founders on structuring and administering trusts that are genuinely compliant, defensible against SARS challenge, and correctly managed to limit personal liability.
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Frequently Asked Questions
Can SARS go after my personal assets to pay the trust’s tax debt?
Yes, but only in the specific circumstances described in Section 155. SARS must follow a formal process and issue a notice before personal liability attaches. If you receive such a notice, seek legal advice immediately. You have the right to challenge it.
If I am just a trustee and not the founder, am I still at risk?
Yes. The personal liability provisions under Section 155 apply to all trustees in control of trust assets, regardless of whether they are the founder. An independent trustee who signs distribution resolutions while the trust has outstanding tax is as exposed as the founder-trustee.
My trust was set up years ago and I have never had a trustee meeting. What should I do?
Act immediately. The absence of trustee meetings is one of the primary indicators SARS uses to identify sham trusts. Establish proper governance going forward, document a clear record from this point, and review whether the trust’s tax filings are up to date and whether any Section 7C liability has been accumulating.
Does Section 7C apply to every trust with a loan account?
It applies to any loan made by a natural person to a trust in which that person has an interest, where the loan bears interest below the official SARS rate. Whether your specific loan account falls within or outside Section 7C requires specific legal and tax advice.