S7C LINKED WITH donation tax

Question 1

Loan amount provided to Sogren

Sogren is the recipient of the loan and has no donations tax implication.

There are no donations tax implications on advancing the loan itself for Forev as Sogren
has an immediate obligation for repayment, (thus not gratuitous).

Answer 1

Interest free element loan provided: Scope of section 7C

Sandile is a connected person to Forev as he owns all the shares in Forev and the loan
would be made at his instance thus the condition of s7C(1)(b) is met.

Forev advances the loan to Sogren, which is held indirectly by the XoliXaba Trust (70%
interest, which is more than the 20% subminimum required by s7C(1)(ii

Sandile (the individual behind the loan) is a connected person in relation to the XoliXaba
Trust as he is a beneficiary of the Trust (s1 definition

Question 2

Application of section 7C

The requirements for s7C to apply have been met and Sandile will be deemed to have
made a donation to the Trust through the use of a company (Forev)

Forev will have no donations tax consequences as s7C deems the donation to have been
made by Sandile (interest free loan).

The amount of the donation is equal to the interest benefit on the loan: R2m x 7,75% =
R155 000.

Answer 2

Sandile can deduct the R100 000 donations tax annual exemption (assuming Sandile has
not already used this): R155 000 – 100 000 = R55 000
(no mark if exemption is applied after calculating 20% and/or is the company is seen to be
making the donation or if a R10 000 casual gift exemption was applied for companies)

The donations tax will be 20% on the amount of the deemed donation: R55 000 x 20% =
R11 000

The deemed donation is deemed to be made on the last day of the year of assessment of
the Trust, which will be the last day of February 2023.

Sandile is liable for the donations tax and he must pay this to SARS by the end of the month
following the month in which the donation is deemed to have been made. Thus, the
donations tax must be paid to SARS by 31 March 2023

Question 3

The deemed donation will arise in the year that the loan remains unpaid. Thus, if a twoyear loan is advanced on 1 March 2022, there will be a deemed donation on 28 February
2023 and again on 28 February 2024 if it remains unpaid.