A Fin24 user wants to know whether the money her children have been giving her is taxable. She writes:
My husband died a few years ago. My sons have been giving me cash to help out.
Do I need to declare this for tax purposes?
In terms of the definition of "gross income" in Section 1, paragraph (i) of the Income Tax Act, it refers to any amount - in cash or otherwise - received or accrued to or in favour of a resident.
It should, therefore, be included in taxable income, unless such an amount is exempt in terms of another section of the act.
Due to the fact that the payments made to you are not payment for services rendered or goods provided, the nature of the payments has to be determined in order to determine the taxability of the amount.
In terms of common law, a gift or donation is defined as: “property, money or assets that one person transfers to another while receiving nothing or less than fair market value in return”.
Maintenance is defined as “the provision of financial support for a person’s living expenses or support so provided”.
In light of these definitions the nature of the cash received monthly will thus be a donation, gift or maintenance payment and as a result these payments will be subject to donations tax.
However, Sections 56(1) and 56(2) of The Income Tax Act contain a list of exempt donations, which includes bona fide, reasonable maintenance payments.
Furthermore, a donation made to any other person by another natural personal will be exempt if the total value of donations for a year of assessment does not exceed R100 000 per donor.
READ: Donations tax explained
If the cash payments received are:
- Donations or gifts and the total amount is less than R100 000 per annum per donor, the amount will not be subject to donations tax in terms of Section 56(2)(b) of the act.
If the amount, however, exceeds R100 000 per annum per donor, the donor will be liable to pay 20% of the value of the donation to the South African Revenue Service (Sars).
- Maintenance payments, the amount will be exempt from donations tax in terms of Section 56(2)(c) insofar as the commissioner regards it as being reasonable.
In light of the above, the amount received needs not be declared for income tax purposes as long as proper records are kept to prove that it is a donation, gift or maintenance payment.
ALSO READ: Tax on donations by a child
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