Reference Acts and documents
Income Tax Act, as amended
Form IT144 – Declaration by donor / donee
Tax Administration Laws Amendment Act 24 of 2020 (TALA, 2020)
In this article, we briefly discuss donations tax in relation to the Income Tax Act.
A donation is any gratuitous (free or at no charge) disposal of property including any gratuitous waiver or renunciation of a right. If the person (donee) receiving the donation gives anything in return, is not a donation.
A donation takes effect when all legal formalities for a valid donation have been complied with as per section 55(3) of the Act.
A donation may be contracted verbally, except when by law it is required that the contract be in writing. The contract needs to be in writing, when immovable property is donated or in the case of executory donations. In terms of s43 of the General Law Amendment Act 70 of 1968, an executory donation (that is a donation promised for a date in the future) must be in writing and signed by the donor or by a person acting on their written authority granted by them and two witnesses. An executory donation takes effect when the property donated is actually delivered.
Donations Tax Rate
Prior to March 2018 it was a flat rate of 20%.
From 1 March 2018, donations tax is levied at a rate of 20% on the aggregated value of property donated not exceeding R30 million, and at a rate of 25% on the value exceeding R30 million (section 64(1)).
Note the following:
- In determining the R30 million threshold, the aggregate value of property donated commences from 1 March 2018 to date of current donation. Any donations made prior to 1 March 2018 must not be taken into account;
- The aggregate value of property to determine the R30 million threshold is calculated after deducting any exemptions (s56);
- Where the donor has exceeded the R30 million threshold, all subsequent donations will be taxed at the rate of 25%.
There are four (4) categories of exemptions:
Category one – Certain donations are completely exempt from donations tax such as a donation made to a spouse; an approved public benefit organisation; any sphere of government; that is cancelled within six (6) months from the date that it took effect as per section 56(1) of the Act.
Category two – In the case of a donor who is not a natural person (for example, companies and trusts), the exemption is limited to casual gifts not exceeding R10 000 per year of assessment as per section 56(2)(a) of the Act.
Category three – The first R100 000 of property donated in each year of assessment by a natural person is exempt from donations tax (section 56(2) (b)).The first R100 000 of property donated in each year of assessment by a
natural person is exempt from donations tax (section 56(2)(b)).
Category four – any bona fide contribution made by the donor towards the maintenance of any person. This exemption is limited to what the Commissioner considers reasonable (section 56(2)(c)).
The following exemptions between spouses are allowed in terms of the Act:
- Donations to or for the benefit of the spouse of the donor under a registered ante-nuptial or post-nuptial contract;
- And donations to or for the benefit of the spouse of the donor who is not separated from them by judicial order.
Section 57A of the Act, stipulates that a donation made by one of the spouses, who is a party to a marriage in community of property, and such property falls in the joint estate of the spouses, such donation shall be deemed to have been made in equal shares.
Section 57A further stipulates that a donation made by one of the spouses, who is a party to a marriage in community of property, where the property was excluded from the joint estate, shall be deemed to have been made solely by the spouse making the donation.
Donations tax applies to any person (for example: individual, company or trust) that is a resident. Non-residents are not liable for donations tax.
The person making the donation (donor) is liable for to pay the donations tax, however if the donor fails to pay the tax within the payment period the donor and donee are jointly and severally liable (section 59).
The Commissioner may at any time raise an assessment on the donor or donee (or both) for the donations tax. Including where the Commissioner is satisfied that the full amount of donation tax was not paid, raise an assessment for the difference. The payment by either the donor or donee will discharge this joint liability (section 60(5)).
After making a donation you must complete the donations tax return (Form IT144 – Declaration by donor / donee) and submit it to your nearest SARS branch together with your proof of payment. Donations tax payments must be made via eFiling.
Donations tax must be paid by the end of the month following the month during which the donation takes effect or such longer period as SARS may allow (section 60(1)).
SARS and Treasury has identified certain contraventions within the PBO (public benefit organisations) regime and has been increasingly implementing additional tax law amendments and compliance mechanisms for purposes of maintaining the sanctity of this important regime.
The most recent Tax Administration Laws Amendment Act 24 of 2020 (TALA, 2020), introduced sanctions in the event that audit certificates (evidence compliance with section 18A) are not adequately obtained, retained and submitted to SARS by the relevant PBOs. SARS has determined that receipts are being issued by entities that are not approved to do so. In this regard, to ensure that only valid donations are claimed and to enhance SARS ability to pre-populate individuals returns, it has been proposed that the information required in the section 18A tax deductible receipts be extended. Furthermore, section 18A-approved PBOs will in future need to comply with SARS third-party reporting mechanisms in respect of the receipts issued.
Author Craig Tonkin