My client who is married out of community of property would like to make a donation to his wife of R10 000 000 rand. The donation will be exempt what would the income tax implications be if the donation was made to his spouse for maintaining her living st
Important:
This answer is based on tax law for the tax year ending 28 February 2018.
Answer:
We agree that the donation will be exempt from donations tax – see section 56(1)(b). The fact that it was ‘given to maintain the living standard’ is irrelevant in this regard.
The tax consequences of a donation are not specifically dealt with in the Income Tax Act. As there is a receipt one must apply the principles of the definition of gross income to determine if it will have tax consequences. Our courts have laid down the law in this regard. According to Judge Smalberger (in CIR v Pick ‘n Pay Employee Share Purchase Trust) “... any receipts accruing to the Trust were not intended or worked for, but purely fortuitous in the sense of being an incidental by product. They were therefore non-revenue. That makes them accruals of a capital nature falling outside the definition of "gross income" in the Income Tax Act, and therefore not subject to tax.” Judge Southwood in CSARS v Wyner agreed with this and stated the principle as follows: “This means that receipts or accruals will bear the imprint of revenue if they are not fortuitous, but were designedly sought for and worked for...”
We accept that this is not a voluntary payment in respect of services rendered as that would be gross income irrespective of its capital nature.
The only other consideration is section 7(2) of the Income Tax Act – the fact that ‘it was ‘given to maintain the living standard’ may well not be sufficient as far as the ‘sole or main purpose of such donation’ is concerned.