In an effort to create a culture of voluntary compliance among taxpayers, the South African Revenue Service has started issuing clarification notices to the public to help answer questions they have around tax filing season.
In the first edition, SARS focuses on donations and their tax implications.
What is a donation?
SARS defines donation as a "gratuitous disposal of property". "A donation requires an element of sheer liberality on the part of the donor, thus highlighting the requirement that the transaction must be gratuitous in nature."
If there is an expectation for something to be given in return, then the transaction is not a donation, SARS highlights.
A transaction which is not gratuitous in nature, such as a once-off payment to secure a contract, is not a donation. These transactions are not subject to donations tax, but any income or proceeds flowing from these unlawful activities (such as a bribe) is taxable, SARS warns.
Do I have to pay tax on my donation?
Some donations are tax exempt. These include donations between spouses, donations to any sphere of government, any registered political party or any approved public benefit organisation.
A donation is tax exempt if the total value of donations per tax year does not exceed R100 000 in terms of property donated by a natural person, or R10 000 in terms of casual gifts in the case of a taxpayer who is not a natural person (for example companies and trusts).
Another exemption applies if the donor makes a contribution towards the maintenance of any person such as child support. "While not limited to a specific amount, this exemption is limited to what the Commissioner considers reasonable," SARS says.
Who is liable for donations tax?
Donations tax applies to any individual, company or trust that is a resident as defined in the Income Tax Act. Non-residents are not liable for donations tax, says SARS.
When to pay donations tax?
"Donations tax must be paid to SARS by the end of the month, following the month during which the donation was made," says SARS.
The person making the donation is liable for the tax. If the donor fails to pay the tax within the set period, both the donor and the party which received the donation will be jointly and severally liable for the tax.
Donations tax can be paid via eFiling.
How much is donations tax?
"Donations tax is leviable at a flat rate of 20% on donations up to a cumulative value of R30m and at a rate of 25% thereafter," SARS says.
The Income Tax Act allows for a tax deduction on the taxable income of any taxpayer of any donation made to any approved organisation, agency, institution or department of government listed in the Act, according to SARS.
Tax deductions are limited to 10% of the taxpayer's taxable income. The amount of donations exceeding 10% of the taxable income is treated as a donation which is made in the following year of assessment.