Unit 5 - Donations Tax Valuation of Deemed Property Flashcards
How do you calculate donations tax?
Donations tax = “Value” of property x 20% or 25%
Where is a fiduciary interest established?
Via will/trust deed.
When is a fiduciary interest (fideicommissum) created?
When a person donates/leaves a property to another person (fiduciary) on the condition that the ownership will pass to a 3rd person (fideicommissary), on the death of the fiduciary.
Fiduciary interest diagram
Person 1: Donor/deceased donates to,
Person 2: Fiduciary
- Full use of property till death
- Owns property but may not dispose of it,
may dispose of the use of the property
(Ltd right)
- Obtains full ownership & will be entitled
to do as wishes with the property when
person 3 dies before person 2
Person 3: Fideicommissary
- Has no entitlement until person 2 dies
- Obtains full ownership when person 2
dies
There is no bare dominium in the property while the fiduciary interest exists.
Usufructuary interest & Bare Dominium diagram.
Full ownership in property consists of 2 rights = Right of ownership (Bare dominium) & Right of use (Usufruct).
Person 1: Donor/deceased donates to,
Person 2: Usufruct
- Right of use, not ownership
- Receives all income arising from
asset/property
- Cannot dispose of right/property
- If person 3 dies before person 2, the
bare dominium goes to person 3’s
estate, not to usufruct
Person 3: Bare dominium
- Full ownership without rights
- Can dispose of Bare dominium, subject
to usufruct
- Obtains full ownership & right of use, if
person 2 dies before bare Dominium or
after a specified period.
The valuation of farming property company.
Calc = Fair market value x 70%
The valuation of limited interest - Fiduciary/usufructuary/other interest.
Step 1: Determine fair market value
Step 2: Determine the annual value of the
property
(Fair market value x 12%) to CSARS
satisfaction.
Step 3: Determine the shortest of:
- Life expectancy of donor (next
bday & gender)
- Life expectancy of donee
(fiduciary/usufruct)
- Right of use
Step 4: Obtain the applicable discount rate
(life expectancy/annuity tables)
- If the period of the right of use is
applicable then just go straight to
obtaining the discount rate in the
annuity tables
Step 5: Value for donations tax purposes
= Annual value (Step 2) x Discount
rate (Step 4)
The valuation of a Bare Dominium.
Step 1: Determine fair market value
Step 2: Determine the annual value of the
property
(Fair market value x 12%) to CSARS
satisfaction.
Step 3: Determine the life expectancy of
the usufruct (next bday & gender)
(Donor and bare dominium not
applicable).
Step 4: Obtain the applicable discount rate
(life expectancy/annuity tables)
Step 5: Value for donations tax purposes
= Annual value (Step 2) x Discount
rate (Step 4)
Step 6: Value of BARE DOMINIUM for
donations tax purposes
= Fair market value (Step 1) - Value
for donations tax purposes (Step
5)
How would an annuity arise?
From an annuity contract, which could be
- Purchased annuity
- Ito a bequest
Right to an annuity = incorporeal asset
NB!! The payer of annuity is under OBLIGATION to pay the annuitant a fixed amount, @ regular intervals, usually for the life of annuitant.
What type of annuities have become more common?
Variable annuities
= The amount is not fixed BUT formula for calc. the annuity is fixed.
How is an annuity subject to donations tax?
Where an annuity is a transfer of value to the donee held by the donor - it is a donation of the right of the annuity
The valuation of a right to an annuity.
Step 1: Determine the annual value
= Annual amount of annuity
Step 2: Determine the shortest of:
- Life expectancy of donor (next
bday & gender)
- Donee’s remaining life expectancy
- Period of annuity (if applicable)
Step 3: Obtain the applicable discount rate
(life expectancy/annuity tables)
- If the period of the annuity is
applicable then just go straight to
obtaining the discount rate in the
annuity tables
Step 4: Value of the donation for donations
tax purposes
= Annual value of annuity (Step 1) x
Discount rate (Step 3)
