Donations Tax

Question 1

General principles on donations

Answer 1

• Donation of property gives rise to recoupment (8)(4)(a) read s8(4)(k)
  -The recoupment will be included in the gross income
  -Donation to non-PBO can claim capital loss
  -If sold at MV to trust there is no donations tax
• Donations of an allowance asset triggers disposal at MV
  -Capital gains and losses on the disposal of a capital asset to a PBO are disregarded for CGT purposes (para. 62 of 8th schedule)
• Gratuitous disposition (Actual donation) or waiver of a right
• Consider specific and general exemption (NB)
  -A donation to a Public Benefit Organisation is exempt from donations tax.
• Only applies to residents on property
  -Consider s7
• Cash is not an asset for CGT purposes
• Donation of cash has no CGT implications as cash is not an asset for CGT purposes
• Donation deemed to be made on the last day or YoA
• Annual exemption of 100k and rate of 20% IF exceed ms R30m then 25%
• Expenditure of improvements incurred by the person inheriting property is not a donation. - no gratuitous disposition
• If there is a donation it would be for bonafide s56(2)(c) exemption
• Not on income but on property
• No donations if made by NR
• Donatio mortis causa forms part of property of Estate
• A donation is also a disposal for CGT
• It is a separate tax (when you transfer wealth)
• Donation of farm results in donation tax being payable at 20% on 70% of mv of farm
• Disposal of shares for inadequate consideration is a donation and donation tax is payable
• Donations tax paid will form part of BC of the asset
• Donation of immovable property will be subject to payment of transfer duty
• Donation mortis causa and in contemplation of death are exempt from donations tax because they form part of estate duty. Only apply when a person dies
• It applies to residents only
  -no donations tax is payable as X is a public company and is therefore exempt from
  donations tax (section 56(1)(n)).
  -It is also exempt in terms of (section 56(1)(r) – group company exemption)

CASH: Donation:
-The donation of cash does not constitute a disposal as defined for CGT purposes.

• Stock donated at CP recoupment if s18A received
• Land and building, include separate calculations
• Donation of immovable property is subject to transfer duty
• For donor and donee calculate recoupment, CGT, allowances. If acquired asset for free s11e for donee

Question 2

Sell shares to trust on loan account, if you die loan is waived (interest free loan)

Answer 2

• Sale of shares at MV is not a donation
• Interest free loan is not a donation for donations tax purposes it is a continuing donation in terms of s7 to extent trust saves paying interest at market rates
• s7C interest free loan gives rise to on going annual donation

Question 3

Donations on property situated outside SA

Answer 3

• NR when obtained property then now resident when you donate it exempt
• Inherit foreign property from NR you’re R when you dispose it (exempt)
• Proceeds from 2 above reinvest are exempt

Question 4

Bare Dominium and Usufrusts

Answer 4

• A bare dominium cannot dispose of usufruct unless you sell it to someone but BD and usufruct right remain with the initial holder
• If the usufruct holder dies, goes to BD.
• The BD can never transfer to usufruct

Question 5

What constitutes a donation?

Answer 5

• Donate cash or assets
• Sell at less than MV (diff)
• Interest-free loan (ongoing donation) amount you sacrificed
• As long as capital remains unpaid failure to charge interest is a continuing donation

Par 73 limitation

Question 6

VAT: Donations

Answer 6

• There is normally a change in use for VAT purposes, since originally when the asset was acquired 85% input VAT was claimed, but now it is used for non-taxable purposes(i.e. 0% taxable).
• s18(1) of the VAT Act applies
• Output VAT and Input VAT

Question 7

Donation to non profit organisation

Answer 7

*Allowances
VAT
-Output tax adjustment s18(1)
-On MV
-Time of supply: Donation date
* s11(a) output VAT adjustment (omv15/115)
* Recoupment: donation of allowance asset at MV
* Donations TAX (MV * 20%)
*CGT: P = MV - Recoupment
BC = TV + DT (formula)

Question 8

Income tax implications irt services rendered for free

Answer 8

• He waived his right to fees no gross income as not amount received or accrued
• NO s18A as no valid tax certificate
• right to fees is property which is an incorporeal right
• Waiving of right can be seen to be a donation
• It will be exempt as donated to PBO no donations tax

Question 9

Donation to spouse

Answer 9

• Not DT between spouses
• s9HB rollover provisions
• BC rolls over to spouse
• Par 68 may apply to speak to if make gain on disposal