What is Donations Tax?
In South Africa, donations tax is a tax levied on the gratuitous transfer of property from one person (the donor) to another (the donee). A donation is defined as any transfer of property made free of charge, or where the donor waives or renounces a right without expecting anything in return. If the donee provides something of value in return, the transfer is not considered a donation under this tax.
Donations tax applies when all legal requirements for a valid donation are met, as specified under section 55(3) of the South African Income Tax Act.
Donations Tax Rate
Donations tax rates in South Africa are structured as follows:
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Prior to 1 March 2018: A flat rate of 20% was applied to the value of the property donated.
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From 1 March 2018: The tax rate was revised to a tiered structure:
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A 20% rate on the total value of property donated up to R30 million.
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A 25% rate on the value exceeding R30 million.
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The R30 million threshold is assessed on the total value of donations made from 1 March 2018 onward, and any donations prior to this date are not included in this calculation. It is important to note that this threshold is calculated after accounting for any applicable exemptions.
Exemptions
There are four main categories of exemptions from donations tax:
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Category One: Certain donations are completely exempt, including those made to a spouse, approved public benefit organizations, and any sphere of government. Donations that are canceled within six months of their effective date are also exempt.
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Category Two: For donors that are not natural persons (e.g., companies or trusts), the exemption applies only to casual gifts not exceeding R10,000 per year.
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Category Three: Natural persons are exempt from donations tax on the first R100,000 of property donated each year.
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Category Four: Bona fide contributions made towards the maintenance of any person are exempt to the extent considered reasonable by the Commissioner.
Liability for Donations Tax
Donations tax is applicable to South African residents. Non-residents are not subject to this tax. The donor is primarily liable for paying the donations tax. However, if the donor fails to pay, both the donor and the donee are jointly and severally liable for the tax.
The Commissioner of SARS (South African Revenue Service) has the authority to raise an assessment on either or both parties if the full amount of the tax is not paid. Payment by either party will satisfy the joint liability.
Steps to Take
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Complete the Donations Tax Return: After making a donation, you need to complete the Donations Tax Return Form IT144 (Declaration by donor/donee).
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Submit the Form: Submit the completed form along with proof of payment to your nearest SARS branch.
Alternatively, you can send the form via email:
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For Large Business clients: lbcenquiries@sars.gov.za
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For High Net Worth (HNW) clients: hnwiqueries@sars.gov.za
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For other taxpayers: contactus@sars.gov.za
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For Tax Practitioners: PCC@sars.gov.za
Payment Details
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Due Date: Donations tax must be paid by the end of the month following the month in which the donation takes effect. SARS may extend this period upon request.
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Payment Method: Donations tax payments can only be made through eFiling.
In conclusion, understanding donations tax is crucial for effective financial planning. By being aware of the rates, exemptions, and procedures, both donors and donees can manage their tax obligations efficiently. If in doubt, consult with us at Tax A Sured Pty Ltd to provide clarity and ensure compliance.
