Donations tax explained

2012-07-02 07:15

A Fin24 user writes:

I would like to structure my estate so that my heirs will pay less in estate duty tax when I die. What would be the implication of transferring my assets, such as my home or business, into my child's name?

Heather Robertson, a consultant at Blink Consulting, responds:

When you simply give an asset away for no value, this would be considered a donation.

Likewise, if you sell an asset for less than its actual open market value, the difference between the price paid and the price that should have been paid will also be considered a donation.

Donations tax, levied at a rate of 20%, must be paid by the donor within three months of making the donation.

To determine when the taxman will deem the consideration paid to be inadequate, we need to apply the test of a willing buyer and a willing seller.

There are certain exemptions when it comes to estate planning. The first R100 000 donation per person is exempt, donations between spouses are exempt and up to 10% of your taxable income can be donated to recognised public benefit organisations (for which you also receive an income tax deduction).

High net worth individuals should consider donating R100 000 per annum (or R200 000 for a couple) to someone other than their spouse, for example their children, grandchildren or possibly a trust. 

A recurring annual investment paid by the donor (but owned by the child/grandchild/trust) lends itself to this form of donation.

Also bear in mind that a loan account in a trust can be reduced by using the R100 000 annual donation. Importantly, from a capital gains tax perspective on a "deemed disposal of the loan account" there must be a physical passing of money.

Donations tax does not often attract much attention. However, you can derive certain benefits from using the exclusions provided and in this way shift the value of your estate into the hands of your ultimate beneficiaries sooner rather than later.

 - Fin24


  • martin.britchford.5 - 2012-07-02 12:30

    all crooks, so you tax me to have all my things, then when i give it away you tax it again, double taxing, and you wonder why people screw you over

  • anton.monnig - 2012-07-03 21:22

    The writer of this article neglects to mention the powerful S.7 of the Income Tax act, that deals with attributions in the case of donations to trusts.

  • chris.pienaar.7967 - 2012-07-11 09:13

    Is a donation considered as income on the receiving end?

  • Brian Johnson - 2013-08-22 12:43

    Advice please, I am buying a property which I want to register in my children's names to avoid transfer duties later. Does this constitute a donation and subject then to donation tax?

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