If you intend making a donation to someone or are the recipient of a gift, it is important to know and understand the tax implications thereof. Further, if you make charitable donations in pursuit of your philanthropic goals, there are certain tax benefits you can take advantage of.
According to Sars, a donation refers to gratuitous disposal of property or any gratuitous waiver of a right. This means that a donation does not have to take the form of money – it can include a physical asset or something that has a deemed value. Donations can include gifting a car to your child, helping a friend out financially, or anything else given away ‘for free’. Even selling a property to your child at a discounted price will amount to a donation which may be taxable.
Importantly, there must be no expectation on the part of the donor to receive something in return, such as in the case of attempted bribery. From a tax perspective, it is important to know (i) whether there are donations tax implications in respect of a donation, and (ii) whether or not the donation is tax-deductible. Donations tax applies to any individual, company or trust that is a resident as defined by the Income Tax Act, which means that non-tax residents are not liable for donations tax.
(i) Donations tax
Receiving a donation
If you’ve received a donation or a gift from someone, note that there are no tax consequences for you as the donee. However, as Sars requires you to declare all taxable and non-taxable income, you will need to declare it in your tax return ITR12 as an ‘Amount Considered Non-Taxable’. From a tax perspective, the donor may be responsible for paying donations tax on the gift to the extent that the value of the gift exceeds the annual exemption. However, where the donor fails to pay their donations tax on time, keep in mind that the donor and donee then become equally responsible for paying the tax due.
Making a donation
Before making a donation or giving a gift, bear in mind that there may be donations tax implications for doing so. Donations tax is calculated at a flat rate of 20% on the value of the donation up to R30 million, and at a rate of 25% on donations over and above R30 million. However, Sars makes provision for a donations tax threshold of R100 000 below which no donations tax is payable. Once the R100 000 per year threshold is exceeded, the taxpayer is required to pay donations tax on the amounts that exceed the threshold. This means that a person can make multiple donations throughout the year on a tax-free basis as long as the cumulative total does not exceed the R100 000 threshold.
Paying donations tax
If you have made a donation, you will need to fill in an IT144 form – which is a declaration by the donor – and submit it to Sars, keeping in mind that any donations tax owing must be paid by the end of the month following the month during which the donation was made and, as such, does not form part of your normal tax returns. The necessary forms can be downloaded via the website and donations tax can be paid via e-filing.
When planning to make a donation, it is important to therefore take into consideration whether donations tax applies and whether your donation is tax-deductible. Donations are strictly regulated by Sars and it is important that you do not fall foul of their requirements. If necessary, let your accountant or tax practitioner assist with structuring your donations in the most appropriate and tax-efficient manner.
(ii) Tax emptions
Over and above the R100 000 tax exemption afforded to every natural person, donations between spouses are not subject to donations tax and such donations do not need to be declared on your tax return – although keep in mind that this does not apply to cohabiting couples who consider themselves to be ‘common law spouses’. Donations made in terms of a testator’s will are also not taxable.
A person who makes bona fide contributions towards the maintenance of a person is also exempt from paying donations tax and, while there is no limit set in this regard, Sars will give consideration to what is regarded as reasonable. Donations to any sphere of government or any registered political party are also exempt from tax. Lastly, donations made to approved Public Benefit Organisations up to 10% of the taxpayer’s taxable income in the year of assessment, are exempt from donations tax.
In terms of Section 18A of the Income Tax Act, you are permitted to donate up to 10% of your taxable income towards a charity although this tax deduction is not automatic, so it is important to do your research beforehand. In order to claim your tax deduction, the Public Benefit Organisation to which you donate must be in possession of a Section 18A certificate which is granted by the Tax Exemption Unit office of Sars.
If you make a bona fide donation to a Section 18A-approved PBO, you are entitled to a tax deduction provided you submit the relevant supporting documentation as proof of the donation. If you are donating to an approved Public Benefit Organisation, you will need to upload your Section 18A certificate when doing your e-filing and this certificate must include the PBO’s reference number, date of receipt of the donation, the name and address of the donor, and the amount or nature of the donation. To make it easier for taxpayers, Sars has published an up-to-date list of all Section 18A approved PBOs on their website.