Donations tax is very different from the taxes we`ve been discussing over
the last few weeks.
In Part 14.5 of the tax return you`re asked to indicate whether you made
donations of more than R5 000 to anyone in the year.
This enables Revenue
Services to see whether you will be subject to donations tax .
You have to submit a separate return for donations tax purposes. You must
declare that donation within three months of making it: in other words,
this is different from the normal tax return that has to be submitted
annually for the year to February.
Donations tax is paid when you donate property (such as cash, a house, a
car, or rights) which is moveable, immovable, touchable or untouchable, to
someone else and the value of that property exceeds R25 000.
If you donate, say, a car with a market value of R30 000 to your friend who
then gives you R2 000 in return, you will be subjected to tax at 25 percent
of R3 000 - tax on the amount in excess of R25 000 but reduced by the value
of the amount you received. This limit of R25 000 applies per year per
person - so a husband and wife will together be able to donate R50 000 a
year from their combined estate.
You will not pay donations tax at all if you donate property (regardless of
the value) to your spouse, churches, or schools, if you cancel that
donation within six months or if the person receiving it will not benefit
from its fruits until you die.
Also, whatever you make available to maintain another person is exempt.
Remember that the person making the donation is liable for tax from Revenue
Services` perspective.
If you donate property to any educational fund (set up to receive donations
for education and training), or to a college or university, you will be
allowed a deduction from your taxable income from other sources. Your
deduction will, however, be limited to R500 or two percent of your taxable
income (whichever is higher). A deduction will only be allowed if you can
produce a receipt from the educational fund confirming it.
In a nutshell, if you donate property to someone, the tax implications
could be - depending on the nature of the donation:
* You could be subjected to donations tax at 25 percent of the value of
property in excess of R25 000;
* You could be taxed on the income received by the person to whom you
donated property - as we discussed in the past two weeks; or
* You could be allowed a deduction from your normal taxable income within
the limits mentioned above.