BEING A GIVER CAN COST YOU MORE THAN YOU THINK

DONATIONS TAX – WHAT IS IT?

Many individuals are unaware of this type of tax as it is arguably the least mentioned. Often, an individual had assets that they are not willing to sell off and would much rather give the asset to another individual. Despite their good intentions, that person would be liable to pay tax on that gift – subject to certain provisions. Donations tax is not a tax on income but is a tax on the transfer of assets (movable or immovable) from a donor to a donee; which is dealt with in Sections 54 to 64 of the Income Tax Act No. 58 of 1962 (the Act).  In terms of the Act, donations tax can be applied to any individual, company or trust that is resident in South African. Non-residents are not liable for donations tax however.

You need to understand what donation means in tax terms and it is defined in the Act as follows: “donation” means any gratuitous disposal of property including any gratuitous (unjustified/unreasonable) waiver or renunciation (abandonment) of a right. A donation will attract donations tax if it is given or received for no remuneration or less than the market value, without the payment of duty (i.e. tax) in return. You must also be aware that the Receiver will also tax you on the enhancement of value if you agree to cancel a restriction over any property such as a right of way servitude or a usufruct.

SO THEN, IF YOU’RE THE DONEE (THE RECIPIENT OF THE DONATION):

If you’ve received a donation or gift then it’s 100% tax free in your hands. There’s no tax consequence for you being the beneficiary of the donation. The only proviso here is that you must declare the donation in your tax return to ensure that you are accurately declaring all your income.

AND IF YOU’RE THE DONOR (THE GIVER OF THE DONATION):

If on the other hand you’re the generous soul who decided to gift someone then you are liable for Donations Tax at a flat rate of 20% on the value of the donation you’ve given. This is only applicable where the donation /donations is /are in excess of R100 000.00 in value (collectively) in that tax year. Anything under this threshold and you’re good.

DEEMED OR HIDDEN DONATIONS

There are also certain assets which are deemed or hidden donations that one must be aware of which is covered in Section 58 of the Act. Essentially, the provision is that where property has been disposed of (donated / gifted) an amount of money (say for example (R10.00) and in the opinion of the Commissioner this amount is not adequate enough then that property (asset) will be deemed to be donated.

Many people fall into that trap when arranging a sale of property involving family members or other related parties. They may think they are doing the recipient and themselves a favour by valuing the property at a nominal amount or even at nothing but that simply means they have disposed of the property for less than a fair market value. The Receiver will require duty to be paid on what it accepts as being the fair market value and may even initiate a tax audit for all parties involved.

Always find out the current fair market value for any property involved then declare that to be the dutiable amount and pay any tax applicable on that figure. If you do not do so, either the Receiver will require valuations to arrive at a dutiable figure or you may find that you are suddenly asked for donations tax some months later when the transaction is reviewed.

WHO MUST PAY AND ARE THERE ANY EXEMPTIONS?

If there is a donation, the donor must pay the donations tax and such tax must be paid within three months from the date the donation was made.  If the donor fails to pay the donations tax, then both donor and donee will become jointly and severally liable for the tax.  An annual exemption of R100 000,00 on the sum of the value of all property donated during any year of assessment is available to natural persons whilst donations between spouses married out of community of property who are not separated are entirely exempt. Donating to somebody or an entity may seem to be a simple task, but there are issues which need to be taken into consideration especially when such donation is below the market value or exceeds the exemption amount allowed in each tax year.

For more information on this or any other legal related queries please contact us at info@randles.co.za or 033 392 8000

BY: Shian Heynes – Attorney at Randles Inc

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