AUTHOR: STEVEN JONES
Helping someone out may be exempt from donations tax—but as always, the devil is in the detail…
DONATIONS TAX is one of those strange taxes where people often question its existence. After all, why would SARS be so mean as to want to tax someone’s generosity? The main reason is estate duty—or, more specifically, the potential avoidance thereof.
In fact, if donations tax did not exist, this would open a massive estate duty loophole. Since estate duty is levied at 20% of the taxable value of one’s estate exceeding R3.5 million (and at 25% of the portion exceeding R30 million), the easiest way to avoid estate duty in such a scenario would be to simply give away one’s assets prior to one’s death.
It is therefore no coincidence that the rates of donations tax are aligned with those of estate duty. According to the SARS website, donations tax is levied as follows:
From 1 March 2018, donations tax is levied at a rate of 20% on the aggregated value of property donated not exceeding R30 million, and at a rate of 25% on the value exceeding R30 million (Section 64(1) of the Income Tax Act).
Take note of the following –
- In determining the R30 million threshold, the aggregate value of property donated commences from 1 March 2018 to date of current donation. Any donations made prior to 1 March 2018 must not be taken into account;
- The aggregate value of property to determine the R30 million threshold is calculated after deducting any exemptions (Section 56); and
- Where the donor has exceeded the R30 million threshold, all subsequent donations will be taxed at the rate of 25%.
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