Making use of a tax-free donations allowance

A Fin24 user wants to make use of the R100 000 donations tax-free allowance, but worries about paying capital gains tax. He writes:

I would like to utilise the R100 000 donations tax-free allowance.

I understand that, if I transfer listed ordinary shares in my portfolio, I need to pay securities transfer tax (STT).

Will the R100 000 be subject to capital gains tax (CGT) - the shares have made a profit and have been held for five years - or not?

Pieter Faber, technical executive: tax law at the SA Institute of Tax Professionals (Sait), responds:
 
The liability for STT for the transfer of listed shares is usually on the member.

The member is the authorised user in terms of the Security Services Act or the participant, namely a person accepted as participant by a Central Securities Depository.

In instances where the tax is not payable by either the member or participant, then the STT is payable by the person to whom the security is transferred - the purchaser.

However, such payment must be made through a member or participant holding the security in custody.
 
Regarding CGT, shares held on capital account will be disposed of for the purposes of CGT if donated to another person.

If the disposal is to a connected party for an amount which is not an arm’s length price or by donation, the fair market value must be used as proceeds.

If the fair market value of the asset donated in that year of assessment is below R100 000, then the donation of the asset will, however, not attract donations tax.
 
The amount of the capital gain will be the amount by which the proceeds or deemed proceeds for the disposal exceeds the base cost of the asset.

If no donations tax is payable on the disposal, then no pro rata portion of such tax will be added to the base cost of the asset.
 
The actual amount of tax payable on the capital gain would depend on any other capital losses, the persons annual exemption and the taxpayers effective tax rate.

- Fin24

Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.

Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.