TAXATION (TAXN01-6)
Donations Tax
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Study Material
• Additional Notes available on MyCourses - Donations Tax chapter
Donations Tax
• Tax on the transfer of wealth/asset not income
• Aimed at taxpayers donating assets in order to avoid
- income tax
- estate duty
• Has the effect of discouraging the transfer of capital
• There is no reference to year of assessment, donations tax to be paid by end of month
following that donation was made
• Donations to certain PBO’s = deductible (s18A) for income tax
Levying of Donations Tax
• 20% value of property that does not exceed R30 million
• or 25% of the value of property exceeding R30 million
• whether directly or indirectly, and
• whether in trust or not,
• in terms of a donation by any donor who is resident in
• the Republic
• Donations tax considered for each donation separately
• Annual donation tax exemption for natural person R100 000
Example
Mr Y and Mr Z had never made donations before. On 30 July 2023 they donated the
following amounts for their children:
Mr Y donated R29 999 999
Mr Z donated R30 000 001
The difference in their donations is R2 but the donations will be taxed at different rates and
tax payable will be very different i.e.
Mr Y R29 999 999 x 20% = R6 000 000
Mr Z R30 000 001 x 25% = R7 500 000
Donations Tax
“donation” means any gratuitous disposal of property including any
gratuitous waiver or renunciation of a right.
What is considered a donation?
Common law:
• an agreement whereby a person, the donor,
• being under no legal obligation to do so,
• delivers or promises to deliver to another, the donee,
• the ownership of a thing gratuitously,
• with the intention of enriching the donee or
• the donor gratuitously release an obligation of a donee
What is considered a donation?
Summary:
Transaction between at least two persons, a donor and a donee whereby the
donee is enriched and the donor correspondingly impoverished.
Must be acceptance by the donee to become the beneficial owner. Takes effect
when all the legal formalities have been complied with i.e. offer, acceptance,
delivery, registration (s55(3))
Exempt Donations
• Donations to spouse under ante-nuptial/post-nuptial contract
• Donations to a spouse
• Donations mortis causa – Contemplation of death
• Donations where donee benefits only upon donor’s death s 56(1)(d)
Example
Example 1 – Donatio mortis causa
• Mr A says to Mr B, ‘’if I am killed in my next motorcycle race, you may have my
speedboat”.
• If Mr A dies in the race, Mr B will get the speedboat and if not, the donation falls away.
Example
Example 2 – Donee benefits upon death
Mr G takes out an insurance policy on his life and irrevocably nominates his son as the
beneficiary under the policy. As the nomination cannot be changed, Mr G has made a
donation to his son. No donation tax is payable at the time of the nomination as his son
only benefits on his father’s death.
Any donation exempt under s 56(1)(d) is deemed property for estate duty per s 3(3)(b) of
the Estate Duty act
Exempt Donations
•Donations cancelled within six months
• Property outside the Republic
▪ if acquired by donor before becoming a resident (a)
▪ if inherited from a non-resident (b)
▪ if original donor was a person other than a company not resident in
the Republic (c)
Example – Offshore assets
Mrs E had the following offshore assets which she donated to an
offshore trust (at market value states in South African Rands)
1. Shares before she became resident in South Africa for the first time R 200 000
2. Shares Mrs E inherited from her late husband R300 000. Her late husband had acquired
these shares before he because resident in South Africa for the first time. He died while
he was a South African resident
3. Money from sale of offshore shares inherited from her father (non-resident) 800 000
Example – Offshore assets
The donation tax payable by Mrs E is on the share inherited from her late husband i.e.
Amount donated R300 000
Less donation tax exemption for natural person (100 000)
R200 000
Donations tax at 20% R40 000
Exempt Donations
• Donations TO the government, political parties, municipalities and to or by exempt
institutions i.e. Public benefit Organizations (PBO), professional bodies, trade union,
recreational clubs, retirement funds, benefit funds, chamber of commerce as well as
sectional title body corporates and share block companies
• Donations relating to voluntary awards for services rendered or to be rendered (as the
voluntary awards will be included in gross income of donee)
Exempt Donations
• Donations relating to voluntary awards in respect of the loss of office or employment or of
any appointment to any office or employment (as the voluntary awards will be included in
the income tax of donee ito definition of gross income)
• Donations relating to voluntary awards in respect of benefits or advantages granted in
respect of employment or to the holder of any office (as the voluntary awards will be
included in the income tax of donee ito definition of gross income) (s8A,s8B,s8C)
Example
Example 1 – Donation by Public Benefit Organisation
ANND is a non-profit organization (NPO), registered as a PBO. Its main objective is to
promote family stability. It donates film equipment to an NPO in Namibia which has the
same object. The Namibian NPO is to make a film which will promote family stability.
The donation by ANND is free of donations tax
Example
Example 2 – Voluntary awards
K (Pty) Ltd gave a gift of an overseas holiday costing R40 000, to Mrs R for being the
friendliest employee in its store. It also gave her shares worth R15 000 that she was not
allowed to sell for 5 years.
The gift is not subject to donations tax as it is taxed in Mrs R’s hands as a fringe benefit in
terms of gross income definition.
The shares are not subject to donations tax because they will be taxed in Mrs R’s hands
after 5 years when she is free to sell them.
Exempt Donations
• Donations made by or to or for traditional council, traditional community, or any tribe
• Donations of property made by a trust
• Donations of right for the use or occupation of farming property to donor’s child
(other than usufruct, fiduciary)
Exempt Donations
• Donations by a public company
• Casual gifts made by a donor, other than a natural person, during any year of
assessment as does not exceed R10 000. If the period of assessment is less or
more than 12 months, the R10 000 must be adjusted appropriately
Example
• The ABC Community Trust has been formed to benefit the ABC community. In addition,
individuals who are members of the community may receive distribution from the trust,
as beneficiaries.
• During the year, the trust distributed interest income of R800 000 to 2 000 individuals,
and donated R150 000 to a farmer so that he could build a recreation Centre on his
farm for the members of the ABC community. The farmer was not a member of the
community, but the donation to him was valid in terms of the objects of the trust.
Donations tax payable by trust = nil
Exempt Donations
•Donations by natural persons as does not during any year of assessment exceed
R100 000
•Bona fide contributions made by the donor towards the maintenance of any person as
the Commissioner considers to be reasonable
•Donations under Land Reform Programme
•Inter-company donations where donor & donee form part of the same group of
companies
Effective date of a donation
When all legal formalities have been complied with:
• On the date of delivery of the property to the donee in the case of an oral
donation; or
• On acceptance by the donee of an offer by the donor (if there is no delivery),
the terms of which are embodied in a deed of donation signed by the donor
• If suspensive condition in deed of donation, donation not affected until these
conditions are met
Valuation of donations
• Not examinable – 27.10
• Bare Dominion
• Usufruct etc. – not examinable
Example – Donations Tax
Donations tax
Question
John Black is a South African resident for tax purposes. John is married to Sarah out of
community of property. John made the following donations during the current year of
assessment:
On 1 May 2023, John stated in a written document that his best friend can have his Harley
Davidson motorcycle valued at R230 000, should he (John) die during his next
mountaineering expedition.
Donations tax
John Black is a South African resident for tax purposes. John is married to
Sarah out of community of property. John made the following donations
during the current year of assessment:
o Why is the important?
o Donations tax only paid by residents
o Different rules apply for individuals
o Spouses married in community of property are taxed jointly on certain
income streams - Only John will pay the tax.
Donations tax
Question
On 1 June 2023, John donated an office block to Sarah. The market value of the office
block at the time of the donation amounted to R11 500 000.
On 13 August 2023, John donated a portfolio of offshore shares to his son to ensure that
his son would be financially well looked after. The market value of these shares amounted
to R1 500 000 at the date on which the donation was made. John accumulated these
assets over a period of ten years for the specific purpose of donating them to his son.
Donations tax
Question:
On 12 October 2023, John donated an amount of R20 000 to his daughter at university
for food and clothes, as she was completely financially dependent on him.
On 16 December 2023, John donated R400 000 to the Save the Dolphins Fund. This
fund is not registered as a Public Benefit Organisation.
Required
You are required to calculate the total donations tax payable by John for the current year
of assessment by completing the following table:
Donations tax
Question:
Donation Amount of donation Reason for
subject to donations exemption where
tax applicable
Total donations tax
payable
Donations tax
On 1 May 2023, John stated in a written document that his best friend can have his Harley
Davidson motorcycle valued at R230 000, should he (John) die during his next
mountaineering expedition.
Answer Donation Amount of donation Reason for
subject to donations exemption where
tax applicable
Harley Davidson R0 Donations tax is not
payable in respect of a
donation mortis
causa/donation made
in contemplation of
death, as this is
exempt.
Donations tax
On 1 June 2023, John donated an office block to Sarah. The market value of the office
block at the time of the donation amounted to R11 500 000.
Answer
Donation Amount of donation Reason for
subject to donations exemption where
tax applicable
Office Block R0 Donations between
spouses are exempt
from donations tax.
Donations tax
On 13 August 2023, John donated a portfolio of offshore shares to his son to ensure that
his son would be financially well looked after. The market value of these shares
amounted to R1 500 000 at the date on which the donation was made. John
accumulated these assets over a period of ten years for the specific purpose of donating
them to his son.
Donation Amount of donation Reason for
Answer subject to donations exemption where
tax applicable
Offshore share R1 400 000 (1 500 The first R100 000 is
portfolio 000 -100 000 – natural the annual exemption
person exemption) for donations tax.
Donations tax
On 12 October 2023, John donated an amount of R20 000 to his daughter at
university for food and clothes, as she was completely financially dependent on him.
Answer
Donation Amount of donation Reason for
subject to donations exemption where
tax applicable
Daughter R0 Bona fide
contributions towards
the maintenance of
any person are
exempt from
donations tax.
Donations tax
On 16 December 2023, John donated R400 000 to the Save the Dolphins Fund.
This fund is not registered as a Public Benefit Organisation.
Answer
Donation Amount of donation Reason for
subject to donations exemption where
tax applicable
Save the Dolphins R400 000
Fund
Donations tax
Answer
Donation Amount of donation Reason for
subject to donations exemption where
tax applicable
Total R1 800 000
(R1 400 000 + 400
000)
Total Donations Tax Payable R360 000 (applying
the rate of 20%)
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