Receiving a generous Christmas gift, whether it be a considerable sum of money, valuable shares, or perhaps a brand new vehicle, can undoubtedly bring joy. However, according to Catherine Fourie, the Head of CPD Consortium, such gifts may also draw the attention of the tax authorities in South Africa. Fourie emphasizes that in South Africa, donations exceeding a specific threshold are subject to taxation, though there are several noteworthy exemptions.
While these acts of generosity often stem from genuine goodwill, they are still subject to oversight by the South African Revenue Service (SARS), and it is the donor’s responsibility to disclose these gifts appropriately. “At its essence, a donation is a gift—a transfer of value made out of kindness, such as gifting cash or a vehicle to a family member without expecting payment,” Fourie explains. SARS has intensified its scrutiny of donation transactions as part of its initiative to address tax compliance. This heightened attention means that donors must provide an extensive description of the donated item on the updated Donations Tax Declaration Form (IT144), which will be effective starting November 1, 2024.
Merely labeling an item as “a car” or “a donation” will not suffice; providing detailed information is critical to ensuring that the donation remains exempt from taxation. For example, a more precise description could be: “2024 BMW X5 M60i, equipped with additional horsepower, featuring specific mileage along with any premium features.” Moreover, supporting documents, such as receipts or appraisals for non-cash contributions, have become increasingly essential to avoid compliance challenges. “All these details are necessary due to legislation requiring the Commissioner to verify if a donation qualifies for an exemption,” Fourie cautions. “A lavish gift, like a brand new Ferrari for your son, may well exceed the exemption limits for donations tax.”
While the donor is responsible for any applicable tax, failure to settle this obligation by the end of the month following the donation could result in joint liability for both the donor and the recipient. The updated IT144 form now includes a self-assessment section aimed at enhancing compliance.
When is a Donation Exempt?
According to Fourie, individual donors can make contributions up to R100,000 during each assessment year without incurring taxes, alongside several other exemptions. For donations exceeding this threshold but not surpassing R30 million, a tax of 20% is applicable. Donations over R30 million attract a higher rate of 25%. Notably, companies and trusts can provide casual gifts of up to R10,000 in a tax year. Some of the key exemptions include: –
Spousal Exemptions: Gifts between spouses are exempt from tax.
Maintenance Contributions: Donations meant for the upkeep of individuals, such as unemployed family members, qualify for exemption as long as they are deemed reasonable by the Commissioner. Simply showing a monthly payment in bank statements may not satisfy the requirements.
Public Benefit Donations: Contributions to qualifying charities or public benefit organizations are also exempt.
When is it Not Completely Free? According to Fourie, there are instances where a transaction may involve partial payments yet still contain a significant generous aspect. “Selling an item at a below-market price could be considered a donation if the generosity is substantial,” she notes.
SARS mandates that the following details be included on the donation return:
- The date of the donation.
- A description of the donation type, such as cash, vehicles, shares, or real estate.
- Information regarding the nature of the donation process, such as a notarial deed or a donation agreement, with a copy attached to the IT144 submission.
- A comprehensive description of the donated item, for instance, “brand new 2024 BMW X5 M60i.” – The total value of the donation, expressed in rands.
- A foundation for the valuation, with supporting documentation, such as a property evaluation report for real estate. Donors must provide credible supporting documents to substantiate the market value of the donated property.
Loans and Trusts Fourie points out that a critical area of SARS’s renewed focus centers on interest-free or low-interest loans made to trusts. “When you lend money to a family trust without applying a market interest rate, SARS interprets the difference between the charged interest and the official rate as a deemed donation,” she explains. This practice could lead to ongoing tax liabilities connected with donations, which underscores the importance of compliance for trust structures.
Why Does This Matter?
While donations are often acts of benevolence, they carry significant tax consequences, Fourie advises. Whether transferring property, cash, or forfeiting a right, failing to adhere to the regulations could result in penalties or interest charges. “By understanding what qualifies as a donation, when taxes come into play, and how to accurately file, taxpayers can circumvent potential issues and remain compliant with the law,” Fourie concludes.
