By Dominique Bowen
Whether you’re fortunate enough to have been on the receiving end of a donation from a family member or friend, or are the generous type and have made a donation in the form of cash, an expensive gift, property or shares to an individual or organisation you wanted to help out, the South African Revenue Service (SARS) needs to know about it.
What steps can you take, as a donor or as the recipient of a donation (donee), to stay on the right side of the receiver when it comes to your tax? Kyle Mandy, tax technical partner at PwC South Africa, answers your questions.
Defining a donation
Before applying rules and exceptions to amounts you’ve given or received, it’s important to be clear on how SARS defines donations: “A donation is any gratuitous (free or at no charge) disposal of property including any gratuitous waiver or renunciation of a right out of pure benevolence. If the person receiving the donation (donee) gives anything in return, it is not a donation.”
If you’re a donee or recipient
Say you’ve received a tidy cash sum as a gift or donation from a family member. A common example could be financial help from your parents towards the deposit on a property you’d like to buy. Donations tax is paid by the donor, not the recipient, so the money is tax-free in your hands. But you still need to declare it to SARS. “As the donee, you need to declare this in your income tax return in order to comply with the requirement to make full disclosure, including of amounts that are considered not taxable,” says Mandy.
In your ITR12 form, search for the section ‘Amount Considered Non-taxable’ and complete it with all the information relevant to the amount or value of the donation to ensure you declare all your income to SARS.
There is one caveat, which could put a damper on the joy of receiving the money. If your donor doesn’t pay donations tax on time, the two of you become equally responsible for the outstanding tax owed on the amount you received. “In such circumstances, you could end up being liable for the tax,” says Mandy.
If you’re the donor
Donations tax is levied at a flat rate of 20% on the value of the donation or gift you give to an individual or organisation. However, this only kicks in on amounts over R100 000 within a single tax year.
On that note, it’s important to remember that you should not wait until filing your annual tax return to declare donations. “Donations tax is payable by the end of the month following that in which a donation that is subject to donations tax is made,” says Mandy.
Also worth noting is that the R100 000 is the cumulative threshold before tax is levied: you could make multiple sums of donations throughout the tax year that amount to less than or equal to R100 000, and be exempt from paying tax. It’s only once this threshold is exceeded that you start paying tax. Then, only the amount in excess of R100 000 is taxable.
Example:
R50 000 to a friend to help start their business
R30 000 to a hospital
R40 000 towards the deposit on a family member’s new property
Total: R120 000
R100 000 exemption
R20 000 subject to 20% tax = R4 000 tax
The donation tax rate increases to 25% when the value of your donations on anything you have donated after March 1 2018 exceeds R30 million. Once you have reached R30 million (which is a cumulative, not an annual amount), you’ll pay 25% tax on all subsequent donations.
To declare donations tax, you need to complete a separate donations tax return (IT 144) to accompany your tax payment. Payment can be made via eFiling.
Don’t forget to declare these
“Frequently, taxpayers are of the mistaken view that casual gifts do not need to be taken into account,” says Mandy. Those new R300 000 wheels you bought as a spoil for your child? It is still subject to donations tax. What about that property you sell at a discount to a family member? The difference between the market value and the sale price would be subject to donations tax, too.
Exceptions (exemptions)
There’s an exception when it comes to spouses. Donations or gifts between spouses for any amount are exempt from donations tax. Similarly, if you receive a gift or donation from a relative or friend living overseas (in other words, not tax resident in South Africa), they won’t be taxed on that amount based on South African tax law.
If you donate to a registered charity or other public benefit organisation, you also won’t be taxed.
PERSONAL FINANCE