Mc Naught & Co
Donations Tax and Planning
TO DONATE OR NOT TO DONATE
Sasha Posner BCom Law, LLB
Are you considering donating your property?
Whether you are a parent considering donating your property to your child, or an elderly person wanting to donate your property to your spouse or to a trust to avoid estate duty tax, it is important to be aware that donations attract donations tax.
The below is a brief, non-exhaustive explanation of donations tax and what to consider before donating your property.
How is Donations Tax Calculated?
Donations tax is calculated at a flat rate of 20% on the value of the donation.
Donations that are valued at R30 million and above are subject to 25% donations tax.
However, there is an exemption of R100 000,00 per tax year. This means that individuals are entitled to make donations up to the value of R100 000,00 in any given tax year, free of donations tax.
Companies and trusts are entitled to donate up to R10 000,00 without attracting donations tax.
Therefore, Harry decides to donate his property which is worth R300 000,00, then donations tax will be calculated on R200 000,00 after the exemption. Harry will be liable to pay donations tax to SARS at 20% of R200 000,00 which is R40 000,00.
It is important to note that if property is sold for a lesser value than its fair market value, then the difference between the fair market value and the reduced amount is deemed to be a donation and will attract donations tax.
When is Donations Tax Exempt?
There are however certain instances where donations tax is exempt.
When spouses make donations to one another these are exempt from donations tax. This applies to donations that are for the benefit of a spouse in terms of a valid antenuptial or postnuptial contract.
Where donations are made from one spouse to another in terms of a marriage that is in community of property, the donation is deemed to have been made in equal shares.
Donations made to public benefit organisations or charitable institutions are also examples of where donations tax is exempt.
Donations tax is only applicable to residents, therefore if you receive a donation from a non-South African resident, for example your cousin who lives and works in the UK, the donor will not be subject to donations tax in South Africa.
Who is liable to pay the donations tax?
The donor is liable to pay the donations tax, however if the donor does not pay, then the donor and the donee become equally liable.
Donations tax is payable by the end of the month during which the donation takes place.
We advise contacting one of our national offices for a more in-depth discussion about donations so that we help you to decide on the best course of action in your particular circumstances.