Last week I discussed the fact that if you give something away for nothing,
or for a price which is less than its market value, you may suddenly find
yourself liable to pay 25 percent donations tax, on amounts given which
exceed R25 000 in any one tax year.
(This amount applies to a natural person).
I mentioned that donations to spouses (not formally separated) would not be
subject to donations tax and nor would amounts given to reasonably maintain
another person.
This week, I intend to let you know what other donations you may make
without incurring donations tax.
Of importance, though, is the fact that, just because a specific donation
will not be subject to donations tax, does not necessarily mean that it
will be deductible for income tax purposes.
In fact, more often than not, it will not be deductible for income tax
purposes, because only certain donations to educational institutions
qualify as deductible.
So what, or to whom, can you donate without incurring donations tax?
* As a South African resident, donations tax is payable if you make a
donation of assets anywhere, or to anyone, in the world.
However, if you acquired the assets before becoming ordinarily resident in
South Africa for the first time, or you inherited from, or were given the
assets by, a non-South African resident, you will not have to pay donations
tax if you give them away.
In addition, if you bought assets out of the proceeds of the sale of assets
acquired in this manner, there will be no donations tax.
* If you donate funds that were derived by carrying on a trade outside
South Africa, there will also be no South African donations tax.
* Similarly, if you donate immovable property (for example, land and/or
buildings) which is located outside South Africa, which you acquired more
than 10 years before you donate it, there will be no South African
donations tax.
* If you donate assets or money to certain tax exempt institutions, for
example, charities or educational institutions, government, a provincial
administration or local authority, or organisations, such as amateur
sporting associations or professional societies (you would need to check if
your chosen donee qualifies as one of these entities), there will be no
donations tax.
* If the property is declared as a distribution from a trust, the trust
will not be subject to donations tax. But if you are donating to a trust,
which is not an exempt institution there may be donations tax.
* If you are a farmer and you let your child occupy or use your farming
property for free or an inadequate charge, this will not be subject to
donations tax.
* A public company (as defined) is not subject to donations tax if it makes
a donation.
* Where land is donated in terms of the Land Reform Programme, it will not
be subject to donations tax.
The tax return asks you to disclose if you have made a donation.
Thus, you
need to know whether you should have paid donations tax or not.
Non-disclosure could have serious consequences.
A further point is of importance here.
This relates to the situation where you might decide to try making a
donation which will be free of donations tax, by donating to a body
corporate, which then, at your request, on-donates it to the person of your
choice.
In terms of the way the exemptions are written, this might appear to avoid
donations tax.
However, the legislature is one step ahead of you, and will deem the
donation by the body corporate to be your donation and donations tax will
be payable!!