Giving gifts to those we love is part and parcel of showing that love. While SARS doesn’t care what you receive under the Christmas tree or on your birthday, certain types of gifts will attract tax events with them- such as large cash sums or passing on a property to a loved one free or at lower than market cost. Strictly speaking, this falls under the ‘donations tax’ heading, the same as big-ticket charitable donations, but it is often called the ‘gift tax’ by laypeople. Today, we will unpack everything you need to know about this tax type to ensure you stay on the right side of the tax man when passing expensive assets to those you love.
What is the Gift Tax in ZA?
In South Africa, the donations tax, or ‘gift tax,’ is a levy on the transfer of assets by way of donation or gift i.e. either free or at substantially less than market value. This tax is levied to prevent individuals from ‘tax dodges’, like reducing their taxable estates by giving away assets during their lifetime. The gift tax is administered and governed by SARS, as with all taxes in the country, and its regulations are outlined in the Income Tax Act.
The donor, or the person giving the gift, is typically liable for the gift tax it generates rather than the receiver. However, there are circumstances where the recipient may be responsible for the tax, such as in the case of donations to certain trusts. These are few and far between, however, and typically involve very specialized types of transactions.
To reduce the tax burden on legitimate donations and gifts, there are also certain exemptions in play. For example, asset transfer between spouses attracts significantly reduced taxation, as it is a very natural thing to happen between spouses. Additionally, some donations to qualifying public benefit organizations are tax-deductible, instead of taxed.
The donations tax, or gift tax, is calculated based on a progressive sliding scale of rates from 20% to 25%, depending on the value of the gift and the relationship between the donor and the recipient, making it very similar to Estate Duty.
Tax Implications on Gifts
Donations tax is a completely different category of tax than the income tax you may be more familiar with. Income tax applies to the regular income earned by individuals. Donations tax is attached to singular large asset transfers that are given at below market value to people close to you or causes you support. Gifts, depending on their nature and value, may be subject to either or both taxes.
The donor is typically responsible for reporting and paying the gift tax due. This includes disclosing the details of the gift, its value, and the relationship between the donor and the recipient. Certain gifts are exempt from this tax, such as those between spouses, donations to qualifying public benefit organizations, and gifts below a fixed value. Donors are obligated to report gifts exceeding a certain value to SARS.
Failure to disclose such gifts may result in penalties. Gifts from non-residents can also have tax implications, and unless they are registered for tax in South Africa, this can get a little tricky. If you have received a large (in Rand value) gift from someone who is not a tax resident in South Africa, you may want to get specific guidance from a qualified professional about any tax that may be due on it.
Currently, you have an allowance of up to R100,000 below which no donations tax is due. If you are the donor, remember that this threshold applies to all gifts that year, not each individually- it is a cumulative total.
Are Gifts Taxable in South Africa?
There is a form of ‘gift tax’, properly known as donations tax, in South Africa. However, this doesn’t mean every little thing you receive will attract tax! For starters, there is an annual exemption of up to R100,000- gifts of this value or less do not attract any tax whatsoever. Additionally, donations tax is paid by the donor, not the recipient, in almost all circumstances, so you can enjoy your largess from your loved one without needing to pay tax for it.
What is the Tax-Free Gift Limit in South Africa?
Currently, you can give up to R100,000 in a single tax year without donations tax applying. As the donor, remember that this exemption applies to all your donations or gifts, not to each individual. So you could give your child a R100,000 helping hand, give your three children R33,000 each, or give your child R80,000 and give R20,000 to charity without paying any donations tax that year. However, you cannot give your child R100,000 and then give R20,000 to charity tax-free. You would be liable for donations tax on that last R20,000.
Are Corporate Gifts Tax-Deductible in South Africa?
Corporate gift costs can be a tax-deductible expense in South Africa. However, this is because they are viewed as marketing expenses, i.e. an expense made to generate your income. You would have to be ready to motivate this if it is questioned by SARS.
Do You Pay Customs on Gifts in South Africa?
If the stated value of a gift sent to you from overseas is over R1,400, you will likely be charged a customs fee for the parcel. Sometimes SARS will open and evaluate gifts under that amount to make sure the ‘gift’ tag is not being used fraudulently, too. However, this doesn’t fall under the ‘gift tax’ heading, but is instead related to how gifts are classed in the standard customs and excise import categories.
Hearing about ‘gift tax’ can be a worrying thing. However, as you can see, it isn’t something applicable except for large transfers of assets under their market value and isn’t a liability for the receiver, but rather the donor themselves.
