Unit 5 - Donations Tax Intro

Question 1

What is donations tax?

Answer 1

Tax on the transfer of assets (not to a PBO s18A)

Question 2

What is the purpose of donations tax?

Answer 2

Persons donate their assets to avoid:
- Normal income tax
- Estate duty

Question 3

Who is liable to pay donations tax?

Answer 3

The DONOR

Question 4

What happens if the donor does not pay the donations tax within the prescribed period?

Answer 4

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

Question 5

What is the rate of donations tax?

Answer 5

20% - before/on/ after 1/3/2018, if aggregate of the value & value of any other property disposed of under taxable donation < R 30mil

25% - on/after 1/3/2018, if aggregate of the value & value of any other property disposed of under taxable donation
> R 30mil

Question 6

What gives rise to donations tax?

Answer 6

Property disposed of
by a SA resident
ito a donation
either directly/indirectly

incl. donations to a trust.

Question 7

What donations are taken into consideration when calculating the aggregate R 30mil threshold?

Answer 7

ONLY donations made on/after 1/3/2018

The R 30mil threshold is a lifetime threshold.

Question 8

What donations are not considered when calculating the aggregate R 30mil threshold?

Answer 8

Exempt donations

For the purpose of imposing donations tax @ rates set out in s64(1)(a) of the Act.

Question 9

Does the donations tax provision apply to non-residents if they donate SA assets?

Answer 9

No, the donations tax provision does not apply to non-residents even if they donate SA assets.

Question 10

Define donation.

Answer 10

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

i.e. something given away for no consideration/ given away for an inadequate amount.

Gratuitous = given away/received without pmt/obligation.

Question 11

Define donee.

Answer 11

Any beneficiary under a donation.

The donee can be a trust as well.

Question 12

Define donor.

Answer 12

SA resident making a donation either directly/indirectly.

Question 13

Define fair market value.

Answer 13

Either:

• Price which could be obtained upon sale
  of property btw a willing buyer and
  willing seller dealing @ arm’s length in
  an open market,

OR

• ito immovable property on which bona
  fide farming undertaking is being carried
  on in R.
  = Price which could be obtained upon
  sale of property btw a willing buyer
  and willing seller dealing @ arm’s
  length in an open market - 30% of that
  price.

Question 14

Define Property.

Answer 14

Any right in/to property,
movable/immovable
corporeal/incorporeal
wherever situated.

Question 15

When does a donation take effect?

Answer 15

• When all legal formalities have taken
  effect for a valid donation (offer &
  acceptance, delivery, registration, etc.)
  :. Valid donation takes effect when the
  donee accepts.
  • ORAL = On date of delivery
  • PROMISE = Signed document
• Donation = contract & normal Roman-
  Dutch law of contracts applies.
• Excludes Executory contracts of donation
  = Donations ito which the subject matter
  of the donation will be delivered to the
  donee @ future date :. Only executory
  contracts of donation have to be in
  writing & witnessed to take effect.

Question 16

s57 - Donations by a company?

Answer 16

Disposal by the company is deemed to be a donation made by the person @ whose instance the disposal was made,
if any property disposed of by any company @ instance of any person (CEO), & disposal would have been treated as a donation had that person (CEO) made the donation directly.

Question 17

s57 - Donations by company.

Dividends?

Answer 17

If a company makes a donation to someone, on instructions of the shareholder

= Dividend distribution by company, &
Donation made by the shareholder, pd
by the company on behalf of the
shareholder

Question 18

s57A - Donations made by spouses.

Answer 18

If donated property falls within joint estate
= donation is deemed to be made in equal shares by each spouse. 50/50

If the donated property was excluded from the joint estate
= donation deemed to be made solely by the spouse making the donation.

Question 19

Define a spouse.

Answer 19

• A partner of a person
• In a marriage/customary union recog. ito
  laws of R
• a Union recog. as a marriage under the
  tenets of any religion
• a same-sex/heterosexual union which the
  Commissioner is satisfied is intended to
  be permanent

Note: In the absence of proof to the contrary, the last 2 unions above are deemed to be out of community of property.

Question 20

s57B - Disposal of right to receive assets relating to services rendered by EE

Answer 20

When the whole/part of compensation for services is to be pd in the form of an asset, the following applies if “EE” disposes of the right to receive the asset before it accrues to “EE”:

• The disposal is disregarded
• EE is treated as having acquired the asset
  = on the date it would have accrued to EE
  if they hadn’t disposed of the right
• The EE is treated as having pd for the
  asset. The amount of this deemed
  expenditure = Value of the asset/fringe
  benefit incl. in EE GI.
• EE is deemed to have donated the asset
  to the other person for the amount =
  Deemed expenditure
• The other person is deemed to have
  acquired the asset for amount = Deemed
  expenditure

Note:
- Not ltd to EE, “EE” = covers all persons
who received an asset in return for
services rendered i.e. independent
consultants

• Came into operation on 1/3/2022

Question 21

Define a deemed donation.

Answer 21

Whenever property is disposed of
for a consideration that is inadequate in the opinion of the Commissioner

Value of the donation = Value of property reduced by consideration pd.