Many clients have heard of donations tax, whereas few have had to use it.

In terms of the Income Tax Act; donations tax is charged at 20%.  It is charged at the same rate as estate duty  and serves as an anti-avoidance regulation to prevent taxpayers from minimising their estate during their lifetime by donating their assets.

To understand this part of the Act we must first define the meaning of a “donation”:

“Donation” means any gratuitous disposal of property including any gratuitous waiver or renunciation of a right.

In terms of the Act, a donation can also amount from property being sold or carried over to a person at a price lower than the market value.

Even though the gratuitous disposal of property is an easy to understand term, the gratuitous waiver of a right is a more complex issue.  The write-off of a loan can be viewed as a donation because of the gratuitous waiver of the right.  Now the issue of interest free loans is raised.  If person A loans money to person B and decides not to charge interest as agreed upon, then this is also viewed as a gratuitous waiver of a right and becomes a donation.

There are certain exemptions with regard to donations:

  • Donations between spouses
  • Donations between companies in the same group of companies
  • Bona fide toward the maintenance of any person
  • Distributions from a trust to the beneficiaries

Any natural person receives a R100 000 yearly exemption and R10 000 for non-natural persons.  This exemption must be taken into account when planning your annual tax.

The donation of assets  can lead to other types of tax e.g.; capital gains tax and dividend tax or tax recoupments with regards to a persons’ income tax.

Please contact the writer of the article for more information.

Contributed by: Sonja Steenkamp, Professional Accountant SA, Professional Tax Practioner SA

This article is for general information only and must not be used as professional advice.  We accept no responsibility for any mistakes,

loss or damage as a result of the use of the information herein.

Contact our offices for a consultation for if you require specialised advice