If you are considering donating money towards a charitable cause or gifting your child, spouse or best friend with a sum of money, a car or a even a house, keep in mind what the Income Tax Act, Act 58 of 1962 has to say about such disposals.

According to the act a disposal of property (money, movable & immovable goods etc) to another will qualify as a donation in the event that such disposal is a gratuitous disposal of property including any gratuitous waiver or renunciation of a right. It is clear that a donation is made when the donor disposes of property and receives nothing in return.

The act distinguishes between two kinds of donations – donatio inter vivos (donation between two persons who are both alive) and donatio mortis causa (a donation where the donee will only receive the donation on the death of the donor).

In order for a disposal to qualify as a donation in terms of the act, the following requirements have to be met:

  1. An offer to donate has to be made by the donor and the offer has to be accepted by the donee;
  2. The donor, when making said offer to donate, has to have the necessary legal capacity to make the donation and, the donee has to have the necessary legal capacity to accept the donation;
  3. The item to be donated has to be an item that a person will be able to trade in the normal commercial sense;
  4. It has to be legal and possible to make the donation; and
  5. The donation has to be identified or easily identifiable.

Once the donee has accepted the offer to donate, a valid contract has been entered into between the parties. It is clear therefore that an offer to donate, in the case of an inter vivos donation, can no longer be withdrawn once the donee has accepted. The only circumstance in which the offer to donate may be withdrawn are in cases of gross ingratitude by the donee.

In the case of a donation mortis causa, the donation can be repealed at any stage up until the donor’s death, since the donation only becomes operative upon the donor’s death.

Prior to making a donation as discussed above, one has to consider the fact that such a disposal carries certain tax implications for both donor and donee. Donations tax is calculated on 20% of the fair market value of the property donated within a year and is payable to the Receiver of Revenue.

Section 59 of the Income Tax Act determines liability for payment of donations tax and stipulates that the donor is liable for payment of donations tax within three months after the donation has been made. Should the donor fail to pay the tax within the prescribed period, both the donor and the donee will be liable jointly and severally for the payment of the donations tax.

The act makes provision for a general exemption for natural persons in the amount of R100 00.00 per year, which means that should the fair market value of the property donated over the course of one year amount to less than R 100 000.00, the donee will be exempted from paying donations tax. Should the amount exceed R 100 000.00, donations tax will be paid on 20% of the amount over and above the R 100 000.00 threshold. This general exemption is only available to natural persons and available every year to both spouses – in other words, spouses may collectively donate up to the value of R200 000.00 per year and still qualify for the exemption.

The act provides for further exemptions, which include, but are not limited to:

  1. Donations in terms of a validly registered prenuptial or postnuptial contract to the spouse of the donor;
  2. Donations between spouses, still married to each other;
  3. Donations in the form of donatio mortis causa (this donation occurs in terms of the donor’s will and is therefore not subject to donations tax);
  4. Donations cancelled within six months after it was made; and
  5. Donations to certain public benefit organisations.

Where spouses are married in community of property, special attention should be paid to the provisions of section 57A of the act. A donation made by one spouse of property which forms part of the joint estate, the donation will be deemed to have been made in equal shares by each spouse. Should the donation therefore be valued at R150 000.00, each spouse will be deemed to have donated to the value R75 000.00 and thus still qualify for the general exemption discussed above. Where the property donated by one of the spouses belongs to the donor spouse only, the donation shall be deemed to have been made solely by the spouse who made the donation.

The above are but a few factors to be considered before making an offer to donate. It is strongly advised that prospective donors consult with the relevant expert to discuss the tax and legal implications before a decision is made.