A taxpayer is a non- South African citizen but resident in South Africa. His mother wants to lend him money as a loan to buy a house, she is a resident and a citizen of Ireland. If he has a loan agreement drawn up, would South Africa consider the amount non-taxable as it is a loan and not a donation?
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
We are not sure why you are concerned that the amount may be taxed in the RSA. From the facts it is clear that the intention of the parties, and it may not be necessary to have a formal written agreement, is to enter into a loan agreement and not to donate. The receipt would then be capital in nature. In terms of section 54, of the Income Tax Act, “… there shall be paid … a tax (in this Act referred to as donations tax) on the value of any property disposed of (whether directly or indirectly and whether in trust or not) under any donation by any resident (in this Part referred to as the donor).” It is advisable to draw up an agreement – they are connected persons and section 31 may not apply, but will have to be considered.