To reduce your tax liability and stay on the right side of SARS, it’s important to understand the tax implications of making donations and which donations are tax deductible. In this article, we answer a number of frequently asked questions on this all-important topic.
What is donations tax?
Donations tax is calculated at a flat rate of 20% on the value of the donation up to R30 million, and at a rate of 25% on donations over and above R30 million. However, SARS makes provision for a donations tax threshold of R100 000 below which no donations tax is payable. Once the R100 000 per year threshold is exceeded, a donor is required to pay donations tax on the amounts that exceed the threshold.
What qualifies as a donation?
A donation refers to a gratuitous disposal of property or any gratuitous waiver of a right. A donation, therefore, does not have to take the form of money but can include a physical asset or something that has deemed value. Anything which is given away for free or at a discounted price will amount to a donation and may be taxable. To be clear, in order to qualify as a donation, there should be no expectation on the part of the donor to receive something in return, such as in the case of attempted bribery.
What are the legal formalities of a donation?
For a donation to take place, the donor must promise to donate something, and this offer must be accepted by the donee. Importantly, for a donation to be effective, both the donor and donee must have legal capacity, failing which no donation is deemed to have taken place. Anything that can be traded can be donated, including fixed or immoveable assets, cash, goods, services, and corporeal or incorporeal rights.
What is the difference between a donation mortis cause and a donation inter vivos?
A donation mortis causa can be described as, with death being seemingly imminent, the donor promises to give the donee something, with the donation being contingent on the donor’s death. For a donation mortis causa to be effective, the donation must be in writing and must be signed by the donor, donee and two witnesses before the donor’s death. Being contingent on a future event, the donor is free to revoke the donation at any time prior to his death. On the other hand, donations inter vivos are donations made between living people with the transfer taking place immediately, with the donation not being contingent on the occurrence of a future event. Once the donor has transferred the gift and the donee has accepted it, the donation is considered to have taken place and is irrevocable.
When is a donation effective?
A donation is deemed to be effective from the date on which all legal formalities have been complied with and once finalised, has tax implications that the donor and donee should be aware of, specifically when it comes to reporting to SARS.
Who is liable for paying donations tax?
Donations tax in the context of individuals is applicable only to South African tax residents, meaning that non-residents are not liable for donations tax. Although donations tax is generally payable by the donor, it is important to note that if the donor fails to pay the tax within a certain period of time, the donor and donee can become jointly and severally liable for the tax.
What are the obligations of the donor?
If you have made a donation, you will need to fill in a declaration form (IT144) and submit to SARS. Bear in mind that any donations tax owing must be paid by the end of the month following the month during which the donation was made and, as such, does not form part of your normal tax returns.
What are the obligations of the donee?
As the donee, there are no tax consequences for you provided that the donor pays any donations tax that he/she is responsible for. That said, SARS requires you to declare all taxable and non-taxable income and you will therefore need to declare your gift in your tax return ITR12 as an ‘Amount Considered Non-Taxable’. But, keep in mind that if the donor fails to pay his donations tax liability, both the donor and donee become equally responsible for the tax owing.
How does the R100 000 per year donations tax exemption work?
The first R100 000 of property donated by an individual in a year of assessment is exempt from donations tax. This means that a person can make multiple donations throughout the year of assessment on a tax-free basis provided that the cumulative total does not exceed the R100 000 threshold. A person can therefore make multiple donations through the year on a tax-free basis provided that the cumulative total does not exceed the R100 000 threshold.
What are the tax implications of donations between spouses?
Donations between spouses are not subject to donations tax and such donations do not need to be declared on your tax return, although keep in mind that this only applies to spouses who are legally married and does not apply to cohabiting couples.
What other donations tax exemptions apply?
Other types of donations which are tax-exempt include donations made in terms of a person’s will. Further, a person who makes bona fide contributions towards the maintenance of a person is also exempt from paying donations tax and, while there is no limit set in this regard, SARS will give consideration to what is regarded as reasonable. Donations to any sphere of government or any registered political party are also exempt from tax.
Are donations to charity exempt from tax?
While not tax-exempt, donations to certain approved public benefit organisations (PBOs) are tax-deductible to the extent that the donation does not exceed 10% of the donor’s taxable income. Any donations exceeding 10% of taxable income will be treated as a donation made in the following year of assessment. However, for an individual to qualify for this tax exemption, he must be in receipt of a Section 18A certificate issued by the PBO which is granted by the Tax Exemption Unit of SARS. If you have donated to an approved PBO during the year of assessment, you can upload the Section 18A certificate when doing your e-filing in order to qualify for the exemption.
When planning to make a donation, it is important to therefore take into consideration whether donations tax applies and whether or not your donation is tax-deductible. Donations are strictly regulated by SARS and it is important that you do not fall foul of their requirements. If necessary, let your accountant or tax practitioner assist with structuring your donations in the most appropriate and tax-efficient manner.
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