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Donations Tax
1
What is donations tax?
In terms of section 54 of the Income Tax Act donations tax is levied on property disposed of by means of a donation. Donations tax is currently levied at 20% of the dutiable amount and is payable within 3 (three) months of the effective date of the donation. The dutiable amount of the donation is determined by subtracting the value of the available exemptions from the value of the property disposed of.
"donation" means –
any gratuitous disposal of property including any gratuitous waiver or renunciation of a right;
In practice the Commissioner normally does not consider the following to be disposals of property under donations:
(a)
a loss suffered by a creditor as a result of a compromise with a debtor;
(b)
the writing off of a debt as irrecoverable where the parties are at arm’s length;
(c)
the unconditional renunciation of an inheritance under a will or intestate succession.
2
Who pays Donations tax?
In terms of section 59 of the Act the person who is liable to pay donations tax is the donor. This section does, however, contain a proviso which states that in circumstances where the donor fails to pay the donations tax within the prescribed period both the donor and the donee will be liable jointly and severally to pay the outstanding amount of donations tax.
The donor is the person disposing of property under a donation. The territorial limitation on the applicability of the tax is linked to the donor. The tax is only payable where the donor is a "resident" (of the Republic). This means that any property disposed of under donation by an individual who is not a resident of South Africa will be free of donations tax even if the property is situated in the Republic.
3
How is donations tax calculated?
The Act prescribes how property should be valued for donations tax purposes. The general rule is that the value of property for donations tax purposes is the fair market value thereof as at the date upon which the donation takes effect.
Where the amount shown in any return as the fair market value is, in the opinion of the Commissioner, less than the fair market value of the property, he/she may fix the fair market value for donations tax purposes (section 62(4)). The decision of the Commissioner in the exercise of his/her discretion in terms of this provision is subject to objection and appeal (section 63). However, in fixing the fair market value in terms of this provision, the Commissioner must have regard to:
(a)
the municipal valuation of the property;
(b)
the divisional council valuation (if any) of the property;
(c)
any sworn valuation of the property furnished by or on behalf of the donor or the donee;
(d)
any valuation of the property made by any competent and disinterested person appointed by the Commissioner (section 62(5)).
Donations tax is levied at a rate of 20% of the value of the property disposed (section 64). This rate applies to donations made on or after 1 October 2001. Donations made on or before 30 September 2001 were taxed at 25% and the rate for donations made on or before 14 March 1996 was 15%.
Example Johannes purchased a Lexus motor vehicle for his son at the value of R550 000. Johannes will have to pay donations tax as follows: | |
First R100 000: | R0 |
R450 000 x 20% | R90 000 |
4
Exemptions
(a)
Donations to a spouse under ante-nuptial or post-nuptial contract.
(b)
Donations between spouses.
(c)
Donations mortis causa (Estate duty is payable).
(d)
Donations under which the donee will obtain no benefit until the death of the donor.
(e)
Donations cancelled within 6 months.
(f)
Donations of certain property situated outside the Republic.
(g)
The first R100 000 donated per year by a natural person.
