The South African Revenue Service (Sars) is sticking to its guns regarding tight deadlines imposed on donations tax payments and says it is “simple to comply with the requirements”.
This comes amidst significant worry in the industry that taxpayers won’t be in a position to correctly calculate the deemed interest on trust loan accounts and pay the donations tax by the end of March 2018. Practitioners argue that the calculations can be quite complex and that failure by Sars to update its systems in line with Section 7C of the Income Tax Act, is not making the declaration and payment process any easier.
The new legislation is aimed at curbing the avoidance of estate duty by moving assets to a trust and took effect on March 1 2017. It means that any loan made to a trust by someone who is a connected person to the trust (usually the founder, trustees or beneficiaries) that does not attract interest at least equal to the official rate of interest (currently 7.75%) is deemed a donation on the last day of each tax year the loan remains outstanding. The donation is equal to the difference in the interest payable on the loan and the official rate.
In terms of the Income Tax Act, donations tax must be paid to Sars by the end of the month following the month during which a donation was made or such longer period as Sars may allow.
Sars says it is not considering the introduction of a process similar to the one applicable to estates, where taxpayers make an interim payment within six months and apply for an extension to submit a final return, thereby offering sufficient time to determine and pay the correct amount once all the information is available.
Sars is of the view that the declaration process “is not that difficult”, but says it may consider an extension on a case-by-case basis.
“In practice, Sars does not generally give a blanket extension and therefore taxpayers would have to apply in respect of each donation made. In addition, it is important to note that the Section 7C deemed donation is not contingent on the finalisation of financials, as the person making the donation has the knowledge of the amounts arising from loans covered in terms of Section 7C by the end of the tax year.”
With regard to concerns that payments can only be made through the “credit push” option on eFiling and that no unique donations tax number exists to correctly facilitate payments via electronic funds transfer (EFT), Sars says at the moment a process is in place to pay via eFiling.
“After payment is made, the taxpayer is required to visit a Sars branch with the completed donations tax form (IT144) together with the proof of payment and request for Sars to complete the filing of the donations tax return.
“At this stage, Sars is not in a position to provide a short-term commitment with regards [to] payment of donations tax through platforms other than eFiling.”
It says plans are in the pipeline to modernise the eFiling system to reduce the paperwork related to Section 7C donations tax payments and returns, but no date has been set.
“The process of submitting a return is manual and [it] is simple to comply with the requirements.”
At this stage, it is not planning to issue an Interpretation Note specific to Section 7C, it says.