Why a clean donation can have sticky consequences

21 February 2024 ,  Dr Candice ReyndersSian Angus 762
A donation, made with the best of intent, may still land you in ‘hot’ water with SARS. In this article, we explain why a donation could result in donations tax being payable to SARS and when and how this could happen.

For tax purposes, a donation is defined as “any gratuitous disposal of property including any gratuitous waiver or renunciation of a right”. This means that the donation must be free or at no charge and should the donee (recipient) who receives a donation give anything to the donor in return, it will not constitute a donation. Donations are not limited to particular types of property and, therefore, both corporeal and incorporeal, as well as movable and immovable assets, may be the subject of a donation. In terms of the Income Tax Act 58 of 1962 (“Income Tax Act”), a donation will take effect once all the legal formalities for a valid donation have been complied with.

Donations broadly fall into two main categories, namely mortis causa donations and inter vivos donations. 

A mortis causa donation occurs where the donor promises to gift property to the donee and which donation shall become effective upon the donor’s passing. For a mortis causa donation to be valid, it must be reduced to writing and signed by the donor in the presence of two witnesses. Furthermore, the donation should be accepted by the donee before the donor’s passing.

An inter vivos donation is a donation made between living persons, with the donation not being contingent upon the passing of the donor. Generally, once the donated property has been transferred by the donor to the donee and the donee accepts the transfer, the donation is deemed to have taken place and is subsequently irrevocable. 

Donations tax is for the most part levied on the aggregate value of the property donated. There are, however, certain exemptions to donations tax as contemplated in terms of section 56 of the Income Tax Act, namely:

  • Certain donations are completely exempt from donations tax, for example, a donation between spouses is exempt if they are legally married, but this exemption does not apply to cohabiting couples.
  • In the case of a donor who is not a natural person, there is an exemption from donations tax that is restricted to casual gifts not exceeding R10 000 in each year of assessment.
  • In respect of property that is donated by a natural person, the first R100 000 is exempt from donations tax in each year of assessment. The property will include a monetary donation.
  • Any bona fide contributions made by the donor towards the maintenance of any person are exempt from donations tax, with the exemption being limited to what the Commissioner of SARS considers to be reasonable.
An important consideration that should be kept in mind is where an asset is disposed of for so-called ‘inadequate consideration’. In such a case the difference between the actual value of the asset and the consideration given will be deemed to be a donation and subject to donations tax. Whether an asset is disposed of for an ‘inadequate consideration’ will be dependent on the discretion of the Commissioner.

Donations tax is only payable by South African residents and, therefore, donations tax is not applicable where a non-resident donates to a resident. Very importantly, where donations tax is payable, the donor is liable for the payment thereof. Should the donor, however, fail to pay the donations tax within the applicable payment period, both the donor and donee will be jointly and severally liable for the payment thereof.

Donations tax is payable by the end of the month following the month during which the donation was made or such longer period as SARS may allow. In respect of the payment of donations tax, the Commissioner may at any time assess either the donor or donee, or both, for the donations tax. The joint liability of the donor and donee for payment will be discharged upon payment of the amount due by either of them.

From the above, it should be clear that there are important considerations when making or receiving a donation. The last thing you want is to receive a monetary donation and then be hit by a donations tax liability. It may also be prudent to reduce a donation to writing and structure the donation correctly to avoid unforeseen donation tax consequences. Obtaining the help of a legal or tax expert is therefore a prudent consideration should you wish to give or receive a donation. 

Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever and no action should be taken on the basis thereof unless its application and accuracy have been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken based on this content without further written confirmation by the author(s). 
Related Expertise: Tax Advisory
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