Donations Tax Returns
Donations Tax is levied at 20% on all donations (except to Public Benefit Organisations) by companies totalling in excess of R10 000 per annum and by individuals totalling in excess of R100 000 per annum, but how is this declared to SARS?
The reason this comes up is that although this is very relevant to trusts and estate planning, we have never, during our 45 years in practice, submitted a Donations Tax Return on behalf of a client, so I actually had to Google it to find out what the return looks like.
It is called an IT144 and is pretty straightforward, requiring little more that the details of the Donor, the Donee and the nature of the donation. The tax is due at the end of the month following that in which the donation was made.
Now, how do you think SARS police this? Well, quite simply, in many cases they can’t. So let’s look at when and how they can.
1) If the Donor or Donee is a Company Director, then they are required to provide a statement of assets and liabilities in their Annual Tax Return. SARS does an approximate computation of Initial net worth + after tax income – probable spend = Ending net worth. This is a very crude calculation because probable spend is a complete unknown (although it would be expected to be reasonably consistent with the previous year). If there is a significant discrepancy in the result, then SARS might ask for an explanation.
2) If the item donated was Fixed Property, then the transfer has to be registered at the Deeds Office and the consideration disclosed, so SARS would definitely pick that up.
3) If the item donated was shares in a private company (usually at R100 cost in the personal statement of assets and liabilities), it is possible but unlikely, that SARS would be able to pick it up.
4) I don’t know enough about listed shares and whether SARS can track their movements.
All in all, a very difficult tax to police, but because it is the sister of Estate Duty, which is also 20%, there is no way that it can be done away with because then everyone would donate assets to their heirs before death and thereby avoid Estate Duty.
Incidentally, a donatio mortis causa, which is a donation made during the lifetime of the donor, but only taking effect on death, is not subject to Donations Tax, but is subject instead to Estate Duty. So what is the point of such a donation? Quite simply a Will can be changed, but so too can a donatio mortis causa so there seems little point in the latter and again, we have yet to come across one in our practice.