Donations Tax: What You Need to Know

Of all the taxes levied on the population by the South African Revenue Service, donations tax – a tax on gifts from one party to another – may be the least understood. Taking into account certain exemptions and thresholds, gifts or donations between legal persons, which include individuals and companies, are taxable. Trusts, though not strictly “legal persons”, are also subject to donations tax. Here is what you need to know.

What qualifies as a donation?

A donation is considered a “gratuitous disposal of property” by SARS. It applies to gifts of money, physical property such as a house or plot of land, and personal items of value such as cars, artworks and jewellery. The tax also applies in instances where you purposefully sell something for less than its market value (in which case the difference is taxable) or if you generously waive or write-off an amount that is owed to you.

How much is the tax and who pays it?

Donations tax is 20% of the value of property donated up to a total value of R3 million in a tax year. On amounts exceeding R3 million, the tax is 25%. Thus on a total donation of, for example, R4 million (after exemptions), you will pay 20% on the first R3 million and 25% on the R1 million above that.

SARS puts the onus of paying the tax primarily on the donor. When the donor pays the tax as required, the receiver, or donee, has nothing to pay. However, SARS holds the donor and donee jointly and severally liable, meaning the donee will have to pay the tax if the donor fails to do so.

Tax on donations that exceed the threshold (see below) must be paid by the end of the month following the month of the donation. After making the donation, the donor must fill in a donor declaration (IT144) form and send it to SARS and pay the tax via eFiling within the stipulated period.

Thresholds and exemptions

• For individuals, the annual threshold is R100 000. This means that if your total donations over a tax year are below R100 000, there is nothing to pay. However if, for example, your total donations are R120 000, you will be liable for tax on the R20 000 above the threshold (R20 000 x 20% = R4 000).

• Companies and trusts have a far lower threshold of R10 000.

• Donations between spouses are tax-free unless SARS suspects you of doing it to avoid tax in other areas. It’s important to note that donations between parents and children are not subject to this exemption, only to the R100 000 threshold. This means that if you decide to contribute to a child’s investment account, you can only donate up to R100 000 a year without being liable for tax.

• Maintenance payments to financially support an ex-spouse or child are exempt from donations tax. This exemption is limited to what SARS considers reasonable.

• Donations to registered public benefit organisations (PBOs) such as charities are tax-free on showing proof of such a donation. If the PBO issues a Section 18A donations tax certificate, donors can also claim an income-tax deduction in their annual tax return, subject to certain limitations.

• Donations from offshore non-tax-resident sources are tax-free. For example, there is no tax payable on a donation from an aunt resident in the UK.

• An inheritance from a deceased estate is not considered a donation in South Africa; it is treated as a capital receipt and not included in the beneficiary’s gross income or subject to donations tax. Instead, the deceased estate is subject to estate duty.

Donations received must be declared

You have to declare donations received in your annual tax return under the Non Taxable Amounts section. Donations are considered capital in nature and thus exempt from income tax. However, you still have an obligation to declare them.

References:

The Ins and Outs of Donations Tax – TaxTim
Donations Tax – SARS
To Donate or to Lend – That is the Question – Investec
A look at the tax implications of donations made and donations received – RSM