The tax payer is helping maintain her adult son and his family. He is unemployed. However, her daughter in law is working and also contributes to the maintenance of the family. The tax payer initially said that she had made a donation to her son of howeve
Important:
This answer is based on tax law for the tax year ending 28 February 2018.
Answer:
We submit that the concern here is whether the individual is actually donating to her child. It does not appear that there is an intent to obtain a tax benefit.
There also doesn’t appear to be an intention between the parties for this to be a loan.
A donation can only take place 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.
There is an exemption from donations tax, if there is no legal requirement to maintain. 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 the whole 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.
It is suggested that you provide the parties with a tax opinion. The parties bear the onus of proof in this regard – see section 102(1)(a) of the Tax Administration Act.
The donations tax would be payable if the section 56(2)(d) exemption doesn’t apply and section 56(2)(b), the R100 000 cumulative amount, would be available.
We don’t have enough detail, and it is unlikely to apply, but you should also look at section 10(1)(q) of the Act. The difference would then be, that the amount may well not be for maintenance, but for something else. That may of course then not qualify for the exemption, but may also not be a donation.
With regard to “maintenance” Judge Beyers made the following comment in CIR v Hickson:
“I take "maintenance of the taxpayer, his family or establishment" to mean feeding and clothing himself and his family, providing them with the necessities of life, and comforts, and, as it were, maintaining a certain standard of living, and keeping up his establishment. "Domestic and private expenses" are, I should say, without attempting an exhaustive definition, expenses pertaining to the household, and to the taxpayer's private life as opposed to his life as a trader. House rent and the cost of repairing the house are specifically mentioned. Other costs which come to mind are servants' wages, the cost of board and lodging, the cost of running a motor-car for private use, holiday expenses, and so forth”.