Many South Africans are facing financial challenges in the wake of COVID-19 and younger generations are finding it harder to accumulate assets than their parents did when they were younger.

Many of our baby boomer clients are now considering making donations to their children in the form of property or capital for a deposit on a property.

Although this is noble, parents must take into account the rules of donations tax in such situations.

In this article, we will look into donations tax and what it means for parents who are helping their children purchase property.

Donations Tax Between Parent and Child

Although many first-time home buyers may have the necessary income to cover monthly bond repayments and other costs related to owning a home, they often lack the capital they need to make a deposit on a home.

In many cases, parents will want to help their children by gifting them the money they need to put down as a deposit on their first ever home.

However, parents and children need to be aware and well-informed about the implications of donations tax, what the tax-free limits are, and who is responsible for paying donations tax if it’s applicable.

Here are some important points that you need to know about donations tax in South Africa:

• Donations by private individuals that do not exceed R100 000 per annum are not subject to tax
• The donation tax rate is 20% for donations above R100 000 and below R30 million
• All legal requirements for a valid donation must be met for donations tax to take effect
• Donations tax only applies to any person who is a South African resident
• If the donor does not pay the donations tax within the stipulated payment period, the donor and donee become jointly liable for the tax

What’s important to note is that the South African Revenue Service (SARS) defines a donation as any gratuitous disposal of property or any gratuitous waiver of a right. In other words, donations are not only in the form of money, but can also be any physical asset that has value.

Additionally, in order for a donation to be considered a true donation, there must be no expectation from the donor for anything in return.

Donations Tax South Africa – Our Financial Advisors in Johannesburg Discuss

Here is everything you need to know about donations tax in South Africa:

Making a Donation

If you are South African resident wanting to make a donation, you will need to be aware of the possible tax implications of such a donation.

As the donor, you are allowed to make tax free donations of up to R100 000 per year. This means that you can make as many donations as you like per year without paying tax, as long as the cumulative total does not exceed the R100 000 threshold.

Any amount that you donated which exceeds R100 000 up to R30 million rand will be taxed at a flat rate of 20%. Any amount over R30 million will be taxed at a flat rate of 25%.

Receiving a Donation

As the donee, receiving a donation from someone does not automatically result in any tax consequences for you.

However, it’s important that you declare all non-taxable income in your tax return ITR12 as an amount considered non-taxable, otherwise SARS will assume that your donation is taxable income.

As a rule, the donor is responsible for paying donations tax should the donation exceed the annual amount of R100 000. However, should the donor fail to pay donations tax on time, you as the donee will inherit shared responsibility for paying the due tax.

Paying Donations Tax

As a donor who has made a donation that qualifies for donations tax (above R100 000), you are required to complete an IT144 form and submit it to SARS as a declaration of the donation made.

It’s also important to note that you will need to pay donations tax by the end of the month that follows the month in which you made the donation. Donations tax does not form part of your normal tax returns.

Therefore, before you make your donation, it’s important to consider whether donations tax applies and whether your type of donation will be tax deductible.

Olemera– Financial Advisors and Tax Consultants South Africa

Our financial advisors are tax experts and can assist you with all things related to donations tax in South Africa, including in situations where parents would like to donate assets to their children in the most tax efficient way. There are so many benefits of personal tax planning that we can help you enjoy.

It is our aim to provide sound, practical financial advice to all our valued clients so that we can help you reach your dreams and make the most out of your finances today and in the future.

Tax advice is just one of the comprehensive financial services that we offer at Olemera to all people across South Africa. Regardless of your portfolio, we are here to help!