Deductible Donations

By Doné Howell, Tax Partner Grant Thornton Johannesburg “Social responsibility is an ethical theory that an entity, be it an organisation or individual, has an obligation to act to benefit society at large.” When your moral compass and sense of social responsibility lead you to acts of benevolence, you could, in addition to the sense of wellbeing that comes from helping others, also qualify for a reduction in your tax bill. In recognition of the valuable role these donations from individuals and businesses play in these tougher economic times, government has legislated further concessions to allow greater tax relief in respect such donations.

Receipt of foreign assets and the subsequent donation thereof to a non-resident trust

Binding Private Ruling 157 dealt with the income tax consequences arising from, and the attribution rules applicable to a distribution of foreign assets made by non-resident discretionary trusts to a beneficiary who is a resident of South Africa, and the subsequent donation by the beneficiary of such assets to another non-resident trust.

Receipt of Foreign Assets and the Subsequent Donation Thereof to a Non-resident Trust

Author: BDO Binding Private Ruling 157 dealt with the income tax consequences arising from, and the attribution rules applicable to a distribution of foreign assets made by non-resident discretionary trusts to a beneficiary who is a resident of South Africa, and the subsequent donation by the beneficiary of such assets to another non-resident trust.

Transferee liable for tax debts of taxpayer

If a person (the transferor) transfers an asset to another person (the transferee) for no consideration or for consideration which is below the market value of the asset, tax consequences arise, including the following: The transferor may become liable for donations tax. If the transferor and the transferee are connected persons in relation to each other, then for capital gains tax purposes, the transferor is deemed to have transferred the asset to the transferee for proceeds equal to the market value. The Tax Administration Act (28/2011), which took effect on October 1 2012, adds another item to that list. Under Section 182(1) of the act, if the transferee receives an asset from a taxpayer which is a connected person in relation to the transferee without consideration or for consideration which is below the fair market value of the asset,

SARS : Basic Guide to Income Tax for PBO and Donations deductions

In South Africa, an organisation that has a non-profit motive or is established or registered as a non-profit organisation does not automatically qualify for preferential tax treatment. An organisation will only enjoy preferential tax treatment after it has applied for and been granted approval as a Public Benefit Organisation (PBO).

Good intentions gone bad

Many taxpayers have over the years fallen into the trap of waiving a right in favor of a third party without considering the full extent of the tax consequences of their actions. Not only is it necessary for taxpayers to be aware of the potential donations tax implications, but it is also necessary to consider whether any capital gains tax (“CGT”) implications arise as a consequence of their actions.

"Adequate consideration" under Section 58(1) of the Income Tax Act

Generally, donations tax is triggered where a person makes a gratuitous disposal of property. Where BEE transactions are concerned, property (eg. shares) is often disposed of at a value below market value. In such cases there are usually good arguments to be made that the disposal is not gratuitous because some indirect commercial benefit will accrue to the person disposing of the property – it makes “

Donations tax implications of maintenance payments

Taxpayers contributing to the maintenance of another person may not be aware that the value of property (cash or assets) donated does not necessarily have to be capped at the current threshold of R100,000 per year of assessment.