Donations Tax

Question 1

What is donations tax?

Answer 1

Donations taxis governed by the Income Tax Act and is taxed on non-exempt donations made by the taxpayer (tax on transfer of wealth/assets).

Question 2

What is the rate of donations tax?

Answer 2

20%

Question 3

What are the steps in calculating donations tax?

Answer 3

1. Take first asset disposed of during the year
2. Determine if the disposal was a donation or deemed donation
3. Apply any specifically applicable exemptions
4. If not exempted, determine value of donation (deduct any payment received)
5. Deduct balance of general exemption
6. Value x 20% = donations tax payable

Question 4

Who is liable for donations tax?

Answer 4

Donor (natural person or private company, cc)

Question 5

What gives rise to donations tax?

Answer 5

Any property disposed of by a SA resident in terms of a donation either directly or indirectly (including donation to trust)

Question 6

What is the definition of donation?

Answer 6

Any gratuitous disposal of property including any gratuitous waiver of renunciation of a right.

Question 7

What is property?

Answer 7

Any rights in or to property movable or immovable, corporeal or incorporeal, where so ever situated.

Question 8

When is the date that donations take effect?

Answer 8

When all legal formalities has taken effect for a valid donation.
- oral: on date of delivery
- promise: signed document
Donee must accept the donation.

Question 9

What is deemed donations?

Answer 9

Property disposed of for an inadequate amount according to the commissioner.

Question 10

What are some of the specific exemptions for donation?

Answer 10

1. Spouse
2. Donation mortis causa (donate if die)
3. Donation upon death (as beneficiary of a policy)
4. Donation to a traditional council
5. Donation of a right to any property situated outside of SA
6. Special bodies
7. Awards included in gross income
8. Already included in s8A, s8B, s8C (ignore)
9. Donation by trust to beneficiary (not donation to trust)
10. Donations of right of use of farming property
11. Donation made by public company
12. Land reform program
13. Donation between companies of same group
14. Bona fide maintenance of a person

Question 11

What is the general exemption of donation other than a natural person?

Answer 11

R10 000 for casual gifts

Question 12

What is the general exemption for a natural person?

Answer 12

R100 000 on all donations

Reduce the amount by each donation until you have reach the full exemption then it is taxable

Question 13

What is the general exemption for spouse married in community of property?

Answer 13

It is donation from joint estate.

R200 000 per year

Question 14

If a property was disposed of by company that would have resulted in a donation if directly disposed of by any person, that person would be deemed to have made the donation.

Answer 14

True

Question 15

When is the donations tax payable?

Answer 15

Three months after the donations been made

Question 16

What happens if the donor omits to pay the donations tax?

Answer 16

The donee and donor are jointly and severally liable for the donations tax.

Question 17

What is the value of the property donated?

Answer 17

If full ownership: fair market value on the day of donation
Right to annuity: special rules
Fiduciary and usufructory interests in property: special rule
Property subject to usufructory interest (bare dominium): special rules

Question 18

What is the fair market value?

Answer 18

The price which could be obtained upon a sale of the property between a willing buyer and a willing seller dealing at army’s length in open market or,
In relation to immovable property, on which a bona fide farming undertaking is being carried on in the Republic, the amount determined by reducing the fair market value by 30%.

Question 19

What are some of the limited interest?

Answer 19

Fiduciary interest
Usufruct
Bare dominium
Annuity

Question 20

What is a fiduciary interest?

Answer 20

A fiduciary interest is created when a person donates or leaves a property to another person known as the fiduciary on the condition that the ownership will pass to a third person known as the fideicommissary on the death of fiduciary.
If the fideicommissary dies before the fiduciary, then the fiduciary becomes the full owner of the property and may retain it or dispose of it as he wishes.
While the fiduciary interest is in existence, the fiduciary although having full dominium in and use of the property cannot dispose of the property. It is possible to disposed of his limited right.

Question 21

What is usufruct and bare dominium?

Answer 21

Full ownership in property consists of two rights, namely right of ownership (bare dominium) and the right of use (usufruct).
The person holding the usufruct (usufructuary) has the right to receive all the income arising from the asset or property but because he does not own the property, he cannot sell it or dispose of it in any way.
The bare dominium holder has the ownership without rights.
On the death of the usufructuary or after specified length of time the usufruct usually passes to the bare dominium holder.
If the bare dominium holder should die before the usufructuary, the bare dominium does not passes to the usufructuary but to his heirs.
The bare dominium holder may dispose of the bare dominium as he wishes.

Question 22

How do you calculate the value of property of limited interest such as fiduciary interest, usufructory or other?

Answer 22

1. Use the fair market value
2. Determine the annual value of the property (value x 12%)
3. Determine the shortest of:
   
   • life expectancy of donor (use next birthday and gender)
   • life expectancy of donee
   • right of use
4. Obtain applicable discount rate from the life expectancy table
5. Annual value x discounted rate = value for donations tax purposes
   NB. If person is not a natural person, use 50 years

Question 23

How do you calculate the value of annuity?

Answer 23

1. determine the annual value (x12)
2. Determine the smallest of:
   
   • period of annuity (annuity table)
   • donee’s life expectancy
   • donor’s life expectancy
3. Obtain the applicable discount rate using either life expectancy table (donor and donee) or annuity table (period of annuity is shortest)
4. Annual value x discount rate = value for donations tax purposes

Question 24

How do you calculate the value of bare dominium?

Answer 24

1. Use fair market value
2. Calculate annual value (value x 12%)
3. Determine life expectancy of the usufructuary
4. Obtained appropriate discount rate
5. Annual value x discount rate
6. Value of bare dominium = fair value - (annual value x discount rate)