LU12 – DONATIONS TAX
WHAT IS DONATIONS TAX?
Donations tax is a tax levied in terms of S54 to S62 of the Income Tax Act. This is not a tax on income but a tax on the net
transfer of assets from one person to another. It is a tax which is levied at a flat rate of 20% (prior to 1 October 2001 the rate
was 25%) on donations made by a person who is ordinarily resident in South Africa, or a domestic company. Donations tax does
not apply to non-residents of South Africa, even if they donate South African assets.
DEFINITIONS – S55
donation is defined as any gratuitous disposal of property or any gratuitous waiver or renunciation of a right. Gratuitous
generally means that something of value is given without payment or obligation or without receiving any value in return.
S55 of the Act defines the donee as the beneficiary of a donation – i.e. the person receiving the donation – and includes, when
property is donated to a trustee to be administered by him for the benefit of a beneficiary, such trustee. This section provides
that any donations tax payable by the trustee in his capacity as such is recoverable by him from the trust assets.
DO QUESTION 12.1
WHO IS LIABLE FOR DONATIONS TAX?
S59 and S60 establish that the donor is liable to pay donations tax within three months of the donation taking effect. The
effective date of donation is the earliest of the date of delivery of the property donated or the date when a written document
containing the terms of the donation is signed by both the donor and the donee.
If the donor fails to pay donations tax within the set period then the donor and the donee will be jointly and severally liable for
this tax. This means that SARS can recover the tax from either the donor or the donee. The donee would be entitled to recover
any donations tax paid from the donor.
If donations tax is paid late, interest at the prescribed rate is payable in terms of S89(2). In addition, donations tax, like any other
tax, is subject to the penalty provisions in the Tax Administration Act.
There are two circumstances in which a donation will be deemed to be made by someone other than the donor, in which case
the donations tax will be payable by this other person. These two circumstances are covered in the Act and are as follows:
CERTAIN DONATIONS BY A COMPANY – S57
A donation by a body corporate (a company or similar institution) will be deemed to be made by a person if that person uses the
body corporate as a vehicle to make that donation.
This will occur where:
the donation was not made in the ordinary course of the normal income-earning operations of the company; and
the donee was selected by the person concerned.
In this scenario the donation will be deemed to have been made by the person concerned. Donations tax will be payable by this
person. However, he is entitled to recover this from the body corporate. If the person concerned is a resident, the donation may
be taxed even though the body corporate may not be a resident.
SARS has also stated in the Draft Comprehensive Guide to Dividends Tax that if a company makes a donation to someone on the
instruction of a shareholder, this will be regarded as a dividend and subject to dividends tax (where the shareholder is not a
South African Company). If the donation is subject to donations tax then SARS will, in addition, apply donations tax on this.
, DONATIONS MADE BY SPOUSES MARRIED IN COMMUNITY OF PROPERTY – S57A
Donations made by spouses married in community of property are treated as follows:
Where the property donated forms part of the joint estate, each spouse will be deemed to have donated half the
property and will pay donations tax on this half.
Where the property is excluded from the joint estate, the donation will be deemed to be made solely by the spouse
making the donation.
Therefore, only in the circumstance where spouse A, married in community of property, has donated property which forms part
of the joint estate will spouse B be deemed to be the donor of 50% of the property donated and be liable for donations tax on
this donation.
EXEMPT DONATIONS – S56
In terms of the Act, no donations tax is payable in respect of the following donations:
S56(1)
a. To a spouse in terms of a registered antenuptial or postnuptial contract, or under a notarial contract entered into as
contemplated in S21 of the Matrimonial Property Act (No. 88 of 1984).
b. To or for the benefit of the spouse of the donor not separated from the donor.
c. As a donation mortis causa.
This is a donation which is made in contemplation of death by the donor – i.e. Mr X undertakes to donate his car to his
friend, Mr Y, if he is killed while base jumping. If he is killed, then Mr Y receives the car. If not, the donation falls away.
d. A donation in terms of which the donee will not receive any benefit therefrom until the death of the donor.
NOTE: Property donated which is exempt from donations tax in terms of either S56(1)(c) or (d) is included in the
donor’s estate for estate duty purposes (see Learning Unit 13).
e. A donation which is cancelled within six months from the date upon which it took effect.
f. This paragraph has been deleted.
g. If such property donated consists of property situated outside the Republic and was acquired by the donor:
i. before the donor became a resident of the Republic for the first time; or
ii. by inheritance from a person who at the date of his death was not resident in South Africa or by a donation if
at the date of donation the donor was a person (other than a company) not ordinarily resident in South Africa;
or
iii. out of funds from the disposal of property exempt under the above two sub-paragraphs, or if the donor
disposed of such properties and replaced it with property (situated outside South Africa and acquired out of
funds from the disposal of such property), any property (outside SA) acquired out of funds earned by him from
the disposal of, or revenue from such properties.
For example, Mr Lucky inherits a property in France from his uncle who was a non-resident in South Africa at
the date of his death. If Mr Lucky donates this property to his son this donation will be exempt from donations
tax in terms of S56(1)(g)(ii). If he were to sell this property and purchase another property in Spain from these
proceeds and then donate this property to his son, this donation would be exempt in terms of S56(1)(g)(iii).
WHAT IS DONATIONS TAX?
Donations tax is a tax levied in terms of S54 to S62 of the Income Tax Act. This is not a tax on income but a tax on the net
transfer of assets from one person to another. It is a tax which is levied at a flat rate of 20% (prior to 1 October 2001 the rate
was 25%) on donations made by a person who is ordinarily resident in South Africa, or a domestic company. Donations tax does
not apply to non-residents of South Africa, even if they donate South African assets.
DEFINITIONS – S55
donation is defined as any gratuitous disposal of property or any gratuitous waiver or renunciation of a right. Gratuitous
generally means that something of value is given without payment or obligation or without receiving any value in return.
S55 of the Act defines the donee as the beneficiary of a donation – i.e. the person receiving the donation – and includes, when
property is donated to a trustee to be administered by him for the benefit of a beneficiary, such trustee. This section provides
that any donations tax payable by the trustee in his capacity as such is recoverable by him from the trust assets.
DO QUESTION 12.1
WHO IS LIABLE FOR DONATIONS TAX?
S59 and S60 establish that the donor is liable to pay donations tax within three months of the donation taking effect. The
effective date of donation is the earliest of the date of delivery of the property donated or the date when a written document
containing the terms of the donation is signed by both the donor and the donee.
If the donor fails to pay donations tax within the set period then the donor and the donee will be jointly and severally liable for
this tax. This means that SARS can recover the tax from either the donor or the donee. The donee would be entitled to recover
any donations tax paid from the donor.
If donations tax is paid late, interest at the prescribed rate is payable in terms of S89(2). In addition, donations tax, like any other
tax, is subject to the penalty provisions in the Tax Administration Act.
There are two circumstances in which a donation will be deemed to be made by someone other than the donor, in which case
the donations tax will be payable by this other person. These two circumstances are covered in the Act and are as follows:
CERTAIN DONATIONS BY A COMPANY – S57
A donation by a body corporate (a company or similar institution) will be deemed to be made by a person if that person uses the
body corporate as a vehicle to make that donation.
This will occur where:
the donation was not made in the ordinary course of the normal income-earning operations of the company; and
the donee was selected by the person concerned.
In this scenario the donation will be deemed to have been made by the person concerned. Donations tax will be payable by this
person. However, he is entitled to recover this from the body corporate. If the person concerned is a resident, the donation may
be taxed even though the body corporate may not be a resident.
SARS has also stated in the Draft Comprehensive Guide to Dividends Tax that if a company makes a donation to someone on the
instruction of a shareholder, this will be regarded as a dividend and subject to dividends tax (where the shareholder is not a
South African Company). If the donation is subject to donations tax then SARS will, in addition, apply donations tax on this.
, DONATIONS MADE BY SPOUSES MARRIED IN COMMUNITY OF PROPERTY – S57A
Donations made by spouses married in community of property are treated as follows:
Where the property donated forms part of the joint estate, each spouse will be deemed to have donated half the
property and will pay donations tax on this half.
Where the property is excluded from the joint estate, the donation will be deemed to be made solely by the spouse
making the donation.
Therefore, only in the circumstance where spouse A, married in community of property, has donated property which forms part
of the joint estate will spouse B be deemed to be the donor of 50% of the property donated and be liable for donations tax on
this donation.
EXEMPT DONATIONS – S56
In terms of the Act, no donations tax is payable in respect of the following donations:
S56(1)
a. To a spouse in terms of a registered antenuptial or postnuptial contract, or under a notarial contract entered into as
contemplated in S21 of the Matrimonial Property Act (No. 88 of 1984).
b. To or for the benefit of the spouse of the donor not separated from the donor.
c. As a donation mortis causa.
This is a donation which is made in contemplation of death by the donor – i.e. Mr X undertakes to donate his car to his
friend, Mr Y, if he is killed while base jumping. If he is killed, then Mr Y receives the car. If not, the donation falls away.
d. A donation in terms of which the donee will not receive any benefit therefrom until the death of the donor.
NOTE: Property donated which is exempt from donations tax in terms of either S56(1)(c) or (d) is included in the
donor’s estate for estate duty purposes (see Learning Unit 13).
e. A donation which is cancelled within six months from the date upon which it took effect.
f. This paragraph has been deleted.
g. If such property donated consists of property situated outside the Republic and was acquired by the donor:
i. before the donor became a resident of the Republic for the first time; or
ii. by inheritance from a person who at the date of his death was not resident in South Africa or by a donation if
at the date of donation the donor was a person (other than a company) not ordinarily resident in South Africa;
or
iii. out of funds from the disposal of property exempt under the above two sub-paragraphs, or if the donor
disposed of such properties and replaced it with property (situated outside South Africa and acquired out of
funds from the disposal of such property), any property (outside SA) acquired out of funds earned by him from
the disposal of, or revenue from such properties.
For example, Mr Lucky inherits a property in France from his uncle who was a non-resident in South Africa at
the date of his death. If Mr Lucky donates this property to his son this donation will be exempt from donations
tax in terms of S56(1)(g)(ii). If he were to sell this property and purchase another property in Spain from these
proceeds and then donate this property to his son, this donation would be exempt in terms of S56(1)(g)(iii).
