The generous Christmas gift you have received in the form of a large sum of money, shares or a new set of wheels may excite the taxman, according to Catherine Fourie, Head of CPD Consortium.

Fourie said that in South Africa, donations above a certain threshold triggers tax, with some notable exemptions. While acts of generosity often come from the heart, they don’t escape the South African Revenue Service (Sars) and the donor has to declare donations to Sars.

"At its core, a donation is a gift, a transfer of value motivated purely by generosity such as giving money or giving your car to a relative without charging them," Fourie said.

"Sars now pays closer attention to these transactions as part of its commitment to closing the tax compliance gap. In line with this, the taxman requires a detailed description of the kind of donation in its updated Donations Tax Declaration Form (IT144), effective from November 1, 2024."

Naming it only as a car or donation is not sufficient, and the detail may just be what makes Sars frown upon the extent of the donation to be exempt from tax.

A detailed description would read something like: 2024 BMW X5 M60i with extra horsepower, the kilometres on the clock and any extra luxuries the car boasts. Supporting documents, like proof of payment or valuations for non-cash donations, are now more vital than ever to avoid compliance issues.

"All this is required as applicable legislation determines the Commissioner can question whether the donation qualifies for an exemption. Chances are a brand spanking new Ferrari for your son may not be exempt from donations tax," Fourie said.

"The donor is responsible for paying the donation tax, but should this person fail to pay the tax due by the end of the month following the month during which the Ferrari was so generously donated, the donor and the beneficiary shall jointly and severally be liable for the tax."

The updated IT144 form also includes a self-assessment section.

When is a donation exempt?

A donor who is a natural person, can make donations of up to R100,000 per year of assessment before donations tax kicks in, among other exemptions, according to Fourie.

Above this threshold up to a total value of R30 million, donations tax is levied at 20% of the value of the donation, and above R30 million at 25%.

Companies and trusts may donate casual gifts of up to R10,000 per tax year.

Other notable exemptions:

- Spousal exemptions: donations between spouses.

- Maintenance contributions: donations made for the maintenance of any person; for instance, an unemployed family member. The exemption is not limited to a specific amount, but to what the Commissioner considers reasonable. Therefore, showing that there is a monthly payment on your bank statement will likely not be enough proof that it is an exempt donation.

- Public Benefit Donations: contributions made to qualifying charities or public benefit organisations.

When is it not completely free?

Fourie said that sometimes, a transaction may involve partial payment in return but still contains a generous element.

"For example, selling an item significantly below its market value could still qualify as a donation if the generosity is substantial," Fourie said.

The details Sars requires on the return:

- Date of the donation

- Description of the nature of the donation, for example: cash, cars, shares, fixed property etc.

- Details of how the property was donated, for example: notarial deed, donation agreement. A copy of such must be attached when the IT144 is submitted.

- Provide as much detail about the property being donated, for example: brand new 2024 BMW X5 M60i.

- Provide the value of the donation in rands.

- The basis of the valuation to substantiate the rand value of the property donated must also be submitted with the IT144, for example: property evaluation report in the case of fixed property.

You would need to attach supporting documents to prove the market value of the property as per a credible valuer, according to Fourie.

Loans and trusts

Fourie said that a key area of Sars’ renewed focus is interest-free or low-interest loans made to trusts.

"If you lend money to a family trust without charging market-related interest, Sars views the difference between the interest charged and the official rate as a deemed donation," Fourie said.

"This could result in ongoing donations tax liabilities, making compliance critical for trust structures."

Why does this matter?

Donations may be acts of kindness, however, they carry significant tax implications, according to Fourie.

Whether you are giving away property, money, or waiving a right, not complying with the rules could result in penalties or interest charges.

"By understanding what constitutes a donation, when tax applies, and how to file correctly, taxpayers can avoid potential pitfalls and stay on the right side of the law," Fourie said.

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