Donations tax is levied in terms of the Income Tax Act at 20% of the value of any property donated by South African tax residents. The tax is levied on the donor, although the Act does make provision for the tax to also be recovered from the person receiving the donation in certain instances if the donor fails to pay the requisite amount of tax.

It is no coincidence that the tax is levied at exactly the same rate as Estate Duty is. It therefore acts as an effective anti-avoidance measure for Estate Duty to ensure that an estate is not reduced by way of donations by a person in anticipation of death and in order to escape the Estate Duty.

A donation could either arise by virtue of a gratuitous disposal of property, or where property has been disposed of for less than adequate consideration. It should be noted that a donation is defined in the Income Tax Act as to specifically include any ‘gratuitous waiver or renunciation of a right’. This implies that the donations tax also potentially comes into play where a loan is waived.

Several exemptions from the tax apply though. These general exemptions include:

• Donations between spouses;
• Awards given to employees;
• Donations to public benefit organisations;
• Distributions by a trust to its beneficiaries; and
• Donations between a ‘group of companies’.

In addition to the above, any bona fide contribution to the maintenance of any person considered to be reasonable by the Commissioner will not attract donations tax. Similarly, a natural person is allowed to annually donate property to the value of R100,000 donations tax free, whilst companies are permitted donations in the form of so-called ‘casual gifts’ of up to R10,000 during a tax year without incurring a liability towards donations tax.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or om missions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omission excepted. (E&OE)