Donations Tax Flashcards
(25 cards)
On whom is Donations tax levied? What are the requirements?
For donations tax to be levied, there must be:
- A donation
- Of a property
- With a value
- By a South African resident
What is a Donation, as defined? (Section 55)
A donation is a gratuitous disposal of property, including a gratuitous waiver or renunciation of a right.
What is property as defined? (Section 55)
Property includes any right in or to property, whether movable, immovable, corporeal, or incorporeal, wherever situated.
What are the main categories of deemed disposals?
- Donations made by companies (Section 57)
- Donations Made by Spouses Married In Community of Property (Section 57A)
- Disposal of the right to receive an asset which would otherwise have been acquired in consequence of services rendered or to be rendered
- Inadequate consideration
Donations made by a company (Section 57)
A donation made by a company
- at the instance of a person AND
- would have been deemed to have been made by the person
is deemed to have been made by that person.
Donations made by spouses Married in Community of Property (Section 57A)
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If the donated property is included in the joint estate, the donation is deemed to be made by both spouses in equal shares.
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If the donated property is excluded from the joint estate, the donation is deemed to be made only by the spouse making the donation
Disposal of the Right to Receive an Asset (Section 57B)
- An employee has agreed to render services to an employer;
- in exchange for an asset.
If an employee disposes of the right to an asset before becoming entitled to it, they are deemed to have acquired the asset on the date they would have become entitled to it and to have made a donation of the amount included in their gross income.
Inadequate Consideration (Section 58)
If property is disposed of for consideration that is inadequate in the opinion of the Commissioner, it is deemed a donation, with the value of the donated property reduced by the said consideration.
Where can the list of specific FULL exemptions be found?
Under Section 56(1)
Specific FULL Exemptions: Donations made by spouses
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Donations made to or for the benefit of the donor’s spouse in terms of a registered ante-nuptial contract, post-nuptial contract, or notarial contract.
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Donations made to or for the benefit of the donor’s spouse, provided the parties are not separated under a judicial order or notarial deed of separation
Specific FULL Exemptions: Donations made (approaching or on death)
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Donations made in contemplation of death (Donatio mortis causa).
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Donations where the donee will not obtain any benefit until the donor’s death.
Specific FULL Exemptions: Other
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Donations cancelled within six months from the date they took effect.
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Donations made by or to any traditional council, traditional community, or tribe as referred to in s10(1)(t)(vii).
Specific FULL Exemptions: Donations of property situated outside South Africa
If the property was acquired:
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Before the donor became a resident of South Africa.
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By inheritance from a person not ordinarily resident in South Africa at their death.
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By donation from a person not ordinarily resident in South Africa at the time of the donation.
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Out of funds derived from the disposal of any property referred to in the three items above
Specific FULL Exemptions: Donations made by or to any person referred to in the following income tax exemptions:
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S10(1)(a): The government of South Africa.
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S10(1)(cA): Certain persons conducting scientific, technical, or industrial research.
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S10(1)(cE): Political parties.
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S10(1)(cN): Public benefit organisations.
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S10(1)(cO): Recreational clubs.
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S10(1)(cQ): Small business funding entities.
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S10(1)(d): Retirement funds.
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S10(1)(e): Share block companies.
Specific FULL Exemptions: A voluntary award included in the recipient’s gross income under the following paragraphs:
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Paragraph (c): Amounts derived for services rendered or to be rendered.
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Paragraph (d): Amounts derived for termination, loss, cancellation, variation, etc., of employment or office.
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Paragraph (i): Taxable fringe benefits
Specific FULL Exemptions:
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Donations made in pursuance of a trust.
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Donation of the right to use or occupy farming property (excluding fiduciary, usufructuary, or similar interests) given to the donor’s child.
Specific FULL Exemptions: Companies
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Donations made by a public company.
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Donations made by a company to another South African resident company within the same group of companies.
Specific FULL Exemptions: Maintenance
Bona fide contributions towards the maintenance of any person that the Commissioner considers reasonable.
General Exemptions (Section 56(2))
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R10,000 for persons other than natural persons. (apportioned)
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R100,000 for natural persons.
Valuation of Donations (Section 62)
The fair market value of the property on the date of the donation, less any consideration payable, is used to determine the value of the donation.
Specific provisions apply for valuing limited interests and annuities like:
- Fiduciary Interest
- Usufruct
- Bare Dominium
- Annuity
* these values will be given to us*
At what rate is Donations Tax levied? (Section 64)
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20% on donated property up to a total value of R30 million.
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25% on donated property exceeding R30 million
Who is liable to pay Donations Tax? (Section 59)
The donor is primarily liable
What if the donor doesn’t pay?
The donor and donee will become jointly and severally liable
How should you approach a Donations tax question?
1.
Determine if there is a donation within the scope of Section 54.
2.
Identify the type of property donated and the donee.
3.
Determine if the donation qualifies for a full exemption (specific exemptions in Section 56(1) or Section 56(2)(c)).
4.
Value the donation if it is not fully exempt.
5.
Apply the partial exemption (general exemption in Section 56(2)(a) or Section 56(2)(b)).
6.
Calculate the donations tax using the applicable rate.
