If the donation is declared on the return of the donee, is it then for SARS to use their discretion as to whether they will seek to tax the donor based on that declaration alone? Or is it necessary to make the application mentioned by you below? Basically
Important:
This answer is based on tax law for the tax year ending 28 February 2018.
Answer:
The declaration by the donee, in the return of income, is not done to alert SARS to the fact that the parties considered this to be a bona fide contribution towards maintenance. It is in response to the “Amounts Received/Accrued Considered Non – Taxable” question on the ITR12. Admittedly SARS will possibly request further information as part of a review or audit of the taxpayer and that may possibly lead to questions about the donation tax consequences. The point we made in this regard was that this declaration by the donee is not relevant to determine the donation tax consequences. We also said that no IT144 may have been required. Your initial request was specifically related to how the parties much approach SARS to determine whether they will consider the amount to be reasonable. We indicated that an advance ruling application is the only way to get that.
Based on the information now provided it would not be possible to make an application for an advanced ruling. This is principally because it would be after the transaction took place. The parties obviously relied on an interpretation that the amount was exempt because it constituted a bona fide contribution to the maintenance of a person.
The correction of the error in the return will also not constitute an application to SARS to express a view on reasonableness of the amount.
Juta’s:
maintenance of any person - Although the maintenance of a person would generally be understood as referring to a natural person, the definition of person (as to which see notes on s 1 person) is far wider.
A donation can only take place for this purpose where no legal requirement to maintain the person concerned exists, or the amount paid is in excess of that requirement. The fulfilment of a legal obligation, whether arising by operation of law (such as the requirement to maintain minor children) or through a court order (such as an order of divorce) is clearly not a donation. The criterion in the former case is one of the amount reasonably required in the light of all the circumstances, including the financial circumstances of the person providing the maintenance. This must be objectively determined.
as the Commissioner considers to be reasonable - The Commissioner may conclude that not all of the amount paid to the person is a bona fide maintenance contribution, in which case he will make his assessment as to what is reasonable on that portion of the contribution which he considers bona fide. He may also find that the full amount paid is a bona fide contribution, but that in his opinion only a portion of it is reasonable. A conclusion of this sort appears difficult to sustain. In general, if the amount paid is a bona fide contribution towards maintenance, it is unlikely that it can be found to be unreasonable. The exercise of discretion by the Commissioner is not, however, subject to objection and appeal.
Media
The tax that you refer to is the donations tax. A donation can only take place for this purpose where no legal requirement to maintain the person concerned exists, or the amount paid is in excess of that requirement. The fulfilment of a legal obligation, whether arising by operation of law (such as the requirement to maintain minor children) or through a court order (such as an order of divorce, but not applicable in this instance) is clearly not a donation.
The specific provision (section 56(2)(c) of the Income Tax Act) uses the words “as the Commissioner considers to be reasonable”. In principle, SARS (the Commissioner) may conclude that not all of the amount paid to the person is a bona fide contribution made towards maintenance, in which case he will make his assessment as to what is reasonable on that portion of the contribution which he considers bona fide. SARS may also find that the full amount paid is a bona fide contribution, but that in his opinion only a portion of it is reasonable. It is generally accepted that a conclusion of this sort (by SARS) appears difficult to sustain. In general, if the amount paid is a bona fide contribution towards maintenance, it is unlikely that it can be found to be unreasonable.
For the recipient of the contribution towards maintenance, the amount would not constitute ‘gross income’ and would not result in any taxable income.