Donations tax: Should I include it on my tax returns?

Donations tax is tax payable at a flat rate on the value of property disposed of by donation. Should it be included in your tax returns? A Fin24 user wanted some advice.

He writes:

My son gives me and his mother (my wife) R5 000 each (which he transfers through my bank account as R10 000) for living expenses. I am retired (my wife never worked) and we are both 64 years old.

My understanding is that if the maintenance payments are reasonable they do not attract tax on my side (my wife is not registered for tax). How do I ascertain that these payments are reasonable to the extent that I do not have to declare them on my tax return?

Tax expert Piet Nel responds:

The tax that you refer to is the donations tax (relevant to the son). A donation can only take place for this purpose where no legal requirement to maintain the person concerned exists, or the amount paid is in excess of that requirement. 

The fulfilment of a legal obligation, whether arising by operation of law (such as the requirement to maintain minor children) or through a court order (such as an order of divorce, but not applicable in this instance) is clearly not a donation. 

The specific provision (section 56(2)(c) of the Income Tax Act) uses the words "as the Commissioner considers to be reasonable."   

In principle, SARS (the Commissioner) may conclude that not all of the amount paid to the person is a bona fide contribution made towards maintenance, in which case he will make his assessment as to what is reasonable on that portion of the contribution which he considers bona fide. 

SARS may also find that the full amount paid is a bona fide contribution, but that in his opinion only a portion of it is reasonable. It is generally accepted that a conclusion of this sort (by SARS) appears difficult to sustain. In general, if the amount paid is a bona fide contribution towards maintenance, it is unlikely that it can be found to be unreasonable. 

For the recipient (you and your wife) of the contribution towards maintenance, the amount would not constitute ‘gross income’ and would not result in any taxable income. 

* Piet Nel is a visiting professor at The Tax Faculty at the University of Witwatersrand

* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER

ZAR/USD
17.00
(-0.09)
ZAR/GBP
21.24
(-0.12)
ZAR/EUR
19.14
(-0.13)
ZAR/AUD
11.81
(-0.13)
ZAR/JPY
0.16
(-0.20)
Gold
1774.74
(+0.03)
Silver
18.05
(+0.01)
Platinum
808.00
(+0.25)
Brent Crude
42.78
(-0.79)
Palladium
1914.01
(+0.62)
All Share
54521.90
(-0.17)
Top 40
50179.89
(-0.26)
Financial 15
10150.02
(-0.64)
Industrial 25
76554.73
(+0.52)
Resource 10
50138.02
(-1.24)
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Please select an option Oops! Something went wrong, please try again later.
Results
I'm not really directly affected
18% - 1598 votes
I am taking a hit, but should be able to recover in the next year
23% - 2091 votes
My finances have been devastated
35% - 3147 votes
It's still too early to know what the full effect will be
25% - 2269 votes
Vote