Donating Property – Know The Law
When deciding about donating property to a family member, it is important to take into account the financial implications as well as understanding the transaction at hand.
What classifies as a property donation?
Let’s first understand the definition of a donation. This is any gratuitous disposal of property including any gratuitous waiver or renunciation of a right. There needs to be an offer to donate, by the person giving the donation (the donor). The offer will then need to be accepted by the person receiving the donation (the donee). The agreement for a donation must be in writing (when it relates to immovable property) and finally the donation must be legal and feasible.
Implications of donating property
- Transfer Duty
Property, valued over R1 000 000, and transferred during a donor’s lifetime to a donee, will attract transfer duty. Transfer duty is payable by the donee who acquires the property.
- Donation Tax
Donation tax of 20% is levied and is payable by the donor to SARS for property donated. The person making the donation (donor) is liable to pay donations tax, however if the donor fails to pay the tax within the payment period the donor and donee can be held jointly and severally liable.
SARS may at any time raise an assessment on the donor or donee (or both) for the donations tax and if SARS believes that the full amount of donations tax was not paid, it can raise an assessment for the difference.
2.1 Exemptions – there are however instances when Donation tax shall not be payable:
- For the benefit of the spouse of the donor under a duly registered antenuptial or post nuptial contract as stipulated in section 21 of the Matrimonial Property Act;
- A donation made to an approved public benefit organisation;
- A donation made to any sphere of government;
- A donation that is cancelled within six months from the date that it took effect;
- Donation made in contemplation or anticipation of death of the donor, with death as the moving cause for the donation.
- In the case of a donor who is not a natural person (for example, companies and trusts), the exemption is limited to casual gifts not exceeding R10 000 per year of assessment;
- The first R100 000 of property donated in each year of assessment by a natural person is exempt from donations tax; and
- So much of any bona fide contribution made by the donor towards the maintenance of any person. This exemption is limited to what the Commissioner considers reasonable.
2.2 How do you pay donation tax?
After making a donation, the donor needs to fill in a IT144 form and send it to SARS. It’s important to know that Donation Tax must be paid by the end of the month following the month during which the donation was made, and that it’s not part of your normal tax return. Payment must be made through eFiling.
These type of transactions needs to be considered carefully and it is recommended that you speak to an attorney who can assist.
For more information: MichelleO@hammondpole.co.za