If a non-resident donates their shares, in a privately owned property company, which is part of their blocked assets, to a foreign trust, is there donations tax and/or capital gains tax implications?
Important:
This answer is based on tax law for the tax year ending 28 February 2018.
Answer:
We accept that the donation that you are referring to results from the “transfer (of) shares in 'n privately owned company to a foreign trust”. You also mention that the company is a ‘property company’ and we assume that the property owned by the company is situated in the RSA.
You have indicated that the individual is not a person resident in the RSA for tax purposes. Remember that for purposes of subparagraph (1)(b)(i) of the Eighth Schedule to the Income Tax Act, an interest in immovable property situated in the RSA includes any equity shares held by a person in a company or ownership or the right to ownership of a person in any other entity or a vested interest of a person in any assets of any trust, if –
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80 per cent or more of the market value of those equity shares, ownership or right to ownership or vested interest, as the case may be, at the time of disposal thereof is attributable directly or indirectly to immovable property held otherwise than as trading stock.
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The transfer of the shares will, in such a case, then constitute a disposal of an asset and a capital gain will result. If the above paragraph doesn’t apply, no capital gain will result on the transfer – it would have resulted on the date the individual ceased to be a resident of the RSA.
From a donations tax point of view, the tax will only be payable if the donation was made by a resident of the RSA – see section 54 of the Income Tax Act.
It then appears that the blocked funds would then only have exchange control implications and no tax implications other than what was mentioned above.