Donations Tax: Should I Include it in my Tax Returns?

Publish Date: 10/11/18 | Source: Fin24 | Author: Piet Nel

Donations tax is tax payable at a flat rate on the value of property disposed of by donation. Should it be included in your tax returns? 

Below is an Example Case:

My son gives me and his mother (my wife) R 5,000 each (which he transfers through my bank account as R 10,000) for living expenses. I am retired (my wife never worked) and we are both 64 years old.

My understanding is that if the maintenance payments are reasonable they do not attract tax on my side (my wife is not registered for tax). How do I ascertain that these payments are reasonable to the extent that I do not have to declare them on my tax return?

Tax expert Piet Nel responds:

The tax that you refer to is the donations tax (relevant to the son). A donation can only take place for this purpose where no legal requirement to maintain the person concerned exists, or the amount paid is in excess of that requirement.

The fulfillment of a legal obligation, whether arising by operation of law (such as the requirement to maintain minor children) or through a court order (such as an order of divorce, but not applicable in this instance) is clearly not a donation.

The specific provision (section 56(2)(c) of the Income Tax Act) uses the words “as the Commissioner considers to be reasonable.

In principle, SARS (the Commissioner) may conclude that not all of the amount paid to the person is a bona fide contribution made towards maintenance, in which case he will make his assessment as to what is reasonable on that portion of the contribution which he considers bona fide.

SARS may also find that the full amount paid is a bona fide contribution, but that in his opinion only a portion of it is reasonable. It is generally accepted that a conclusion of this sort (by SARS) appears difficult to sustain. In general, if the amount paid is a bona fide contribution towards maintenance, it is unlikely that it can be found to be unreasonable.

For the recipient (you and your wife) of the contribution towards maintenance, the amount would not constitute ‘gross income’ and would not result in any taxable income.


Publish Date: November 10, 2018 | Source: Fin24 | Author: Piet Nel

How this affects you…

Whether or not a donation is taxable or not is often misunderstood. This case helps understand a very common scenario which is seen with the number of retirees who cannot afford to retire.
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