Section 54 of the Income Tax Act provides that when a property is disposed of for no value, or for less than the fair value, it is regarded as a donation and the donor is liable to pay donations tax of 20% on the value of the property (for property valued under R 30 million). The donations tax is payable to SARS where a property is transferred to the recipient in the absence of a sale agreement or any other operation of law.
The recipient will be additionally liable to pay transfer duty on the value of the property.
The following scenarios are exempt from the payment of donations tax:
1. Property donated to a spouse of the donor.
2. Personal property donated by a donor where the donation only takes effect after the donor passes away.
3. A donation to a person for bona fide maintenance
4. The property is donated to a Public Benefit Organization such as institutions of advancement of art, sciences, education, charity organizations etc.
5. A donation made by a person who is a non – resident in the Republic or a foreign company.
6. Donation made to an approved government institution.
Every natural person is allowed to donate an amount of R100 000.00 per year free of donations tax. If the donor does not pay donations tax, the donor and the recipient of the donation will become jointly and severally liable for such payment.