A donation is property (including cash and shares) transferred to the recipient at no cost.
Donation’s tax is levied at a rate of 20% for donations up to the aggregate value of R30 million, thereafter the excess of R30 million is levied at a rate of 25%.
Individuals get an annual exemption of R100,000 from donations tax in each year of assessment. For example, if a person donates R101,000, only R1,000 will be subject to donations tax at 20%.
Tax effects in the hands of the donor:
As a donor, you are liable for donations tax for donations greater than the R100,000 threshold. For example, if you donate a sum of R32 million in a year of assessment, R100,000 will be exempt from tax, R30 million will be taxed at 20% and R1.9 million will be taxed at 25%.
In addition to the R100 000 annual exemption, a deduction in terms of section 18A which is limited to 10% of your taxable income is allowed in relation to donations made to approved public benefit organization (PBO). A list of these approved PBO’s can be found on the SARS website. As the donor, you will have to obtain a receipt in terms of section18A to be able to claim this deduction.
Tax effects in the hands of the recipient:
If you have received a donation, the donation is 100% exempt from tax. Although the donations are tax free, the donations should still be declared to SARS when completing the annual tax return as non-taxable receipts. This is to ensure that you declare all your income to SARS.
However, should you receive a donation over the threshold of R100,000 and the donor does not pay the donations tax to SARS on time, you will be jointly liable with the donor for the donations tax.