South African Revenue Service Donations Tax, Donations tax is levied at a flat rate of 20% on the cumulative value of property donated not exceeding R30 million, and at a rate of 25% on the cumulative value exceeding R30 million (sections 54 to 64 of the Income Tax Act, 1962).
A donation is widely defined and includes property disposed of for an inadequate consideration (section58).
Exemptions
Section 56(1) contains a list of exempt donations which include amongst others donations between spouses and donations to approved public benefit organisations.
Current Annual exemptions
A donation will be exempt if the total value of donations for a year of assessment does not exceed:
- The first R100 000 of property donated in each year by a natural person is exempt from donations tax.
- In the case of a taxpayer who is not a natural person, the exempt donations are limited to casual gifts not exceeding R10 000 per annum in total. In other words, these are casual gifts by companies and trusts: R10 000 (section 56(2)(a)).
- Dispositions between spouses and South African group companies and donations to certain public benefit organisations are exempt from donations tax.
- Donations by individuals: R100 000 (from 2008 to 2018 years of assessment) (section 56(2) (a) and (b)).
Also qualifying for exemption is so much of any bona fide contribution made by the donor towards the maintenance of any person. While not limited to a specific amount, this exemption is limited to what the Commissioner considers reasonable (section 56(2)(c)).
Deductions
Deductions in respect of donations to certain public benefit organisations are limited to 10% of taxable income (excluding retirement fund lump sums and severance benefits). The amount of donations exceeding 10% of the taxable income is treated as a donation to qualifying public benefit organisations in the following tax year.
Who is it for?
Donations tax applies to any individual, company or trust that is a resident as defined in section 1 of the Income Tax Act, 1962.
Non-residents are not liable for donations tax.
The person making the donation (donor) is liable for the tax but if the donor fails to pay the tax within the set period the donor and donee are jointly and severally liable for the tax (section 59).
Public companies and public benefit organisations amongst others are exempt from donations tax (section 56(1) (h) and (n)).
How does Donations Tax work in relation to an inheritance?
What steps must I take?
After making a donation you should fill in form IT144 (Declaration by donor / donee) and submit it to your nearest SARS branch with your proof of payment.
When should it be paid?
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)).
A donation takes effect when all legal formalities for a valid donation have been complied with (section 55(3)).
How should it be paid?
Donations tax can be paid via eFiling. For more information on payment rules, click here.
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