Generosity is a virtue. People love receiving gifts and many charities survive solely on gifts and donations. The South African Revenue Service also loves a good gift or donation because it’s an opportunity to collect tax where that gift or donation is a particularly generous one. Here’s what you need to know about big gifts and donations and how they’re taxed in South Africa.
What is a donation? Why is it taxed?
A donation is the act of giving money, or valuable assets for charitable purposes, while a gift or a present is usually money or an item of value that is given to someone without expecting anything in return. To ensure that there is no shady business going on under the disguise of gifts or donations, the South African Revenue Service (SARS) keeps a close eye on such actions because they’re taxable.
Bear in mind that it doesn’t always have to be money to qualify as a donation or a gift. If it’s not money, it still counts as a donation (according to SARS) if you dispose of or waive your rights to a physical asset with material value, as long as you expect nothing in return. This distinction is important and in order to be considered a donation in terms of the Income Tax Act, the person giving or donating must not expect to receive anything in return or it is considered a payment and no longer a gift or donation. This means that if you have (or you are planning to) donate a large sum of money, give away shares in a business or sell your property at a discounted rate to a friend, SARS will need to be kept in the loop. Declare such gifts and donations to SARS, and take careful note of the tax implications of your generosity so you’re not caught by surprise.
Who must pay donations tax in South Africa?
Any individual, trust or business that is considered a tax resident of South Africa must pay donations tax in line with the Income Tax Act.
- Donations tax is charged at a flat rate of 20% on the value of the gift or donation, up to the value of R30 million.
- After the R30 million cap, the donation tax goes up to 25%.
Foreign residents do not have to pay donations tax, as long as the source of the funds donated is foreign as well.
Does the recipient of a gift or a donation have to pay tax?
A donation/gift is not taxable, but it must be declared in the individual’s tax return (ITR12) as an “Amount Considered Non-Taxable. This rule stops applying if the donor does not pay their donation or gift tax on time, after which the donor and recipient become equally liable for the tax. For this reason, if you receive a particularly generous gift, it is worth your while to ensure that the giver declares their generosity to SARS and pays their donation tax on time so that you don’t land up in hot water.
How much of a donation is tax free?
Individual resident taxpayers have a gift/donation tax allowance in terms of which up to R100 000 can be given tax free. After this amount, gifts/donations are taxed at 20%. If the amount given is under R100 000, there are no tax implications.
It must be noted, however:
- The giver only gets one gift allowance per year, and this cannot be used to make multiple donations or gifts of R100 000 each.
- It is worth noting that the gift allowance falls under the Single Discretionary Allowance of R1 million, and cannot be used to extend the SDA if the intent was to use the gift allowance to move money overseas.
What are the donations tax exemptions in South Africa?
According to the SARS website, there are four main categories of gifts or donations that are exempt from tax.
|Category 1:||Certain donations, such as gifts between spouses.|
|Category 2:||Juristic persons (such as trusts or businesses) can give casual gifts of up to R10 000 per year of assessment.|
|Category 3:||The first R100 000 donated in each year of assessment by a natural person is exempt.|
|Category 4:||Any genuine contribution made toward the maintenance of any person, limited to what the Commissioner deems reasonable.|
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