FAQ – Tax on donations by a child

 A  user asks about tax on donations. He writes:

My son is going to give me a donation to help in the purchase of a life rights unit in a retirement village.

Will I have to pay tax on this donation?

Tony Davey of Tony Davey & Associates responds:

Donations tax is payable at the flat rate of 20% on any gratuitous disposal of property (including cash) by a person ordinarily resident in South Africa.

Certain exemptions apply and of partial relevance in this context is the R100 000 per tax year.

The tax year for a natural person is March 1 to end February. It follows that if the son donates R100 000 before the end of February 2014 and then again on or after March 1 2014, a total of R200 000 is exempt.

Further to this, the son could grant his parent an interest-free loan on any balance of the amount required to buy the life rights and R100 000 of this could be donated in subsequent tax years, thereby avoiding donations tax.

The methodology regarding the writing-off of a loan balance is, however, important, in that there must be an actual flow of cash as a donation instead of merely writing down the debt as an accounting entry.

If donations tax is payable, the donor son has a grace period to pay (initially the end of the following month) failing which the donee mother becomes jointly liable for such tax.