A client who is a tax resident has forwarded me the following question: I want to confirm the tax implications of accepting a donation / gift from a family member who lives abroad and is not resident in South Africa? Some additional information - the Dono
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
You have indicated that the donor is not a ‘resident’ of the RSA – see section 1(1) of the Income Tax Act.
In terms of section 54, of this 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).”
So, where the donor is not a resident, there is no donations tax payable in the RSA.
The tax consequences of a donation or inheritance (for the donee (recipient)) 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...”
The taxpayer bears the burden to prove that it was of a capital nature – fortuitous and that it was not in respect of services rendered.
The donee, RSA resident, then declares this as an amount “considered non-taxable’ on the return of income for the year of assessment that it was received.
The other questions are not tax related ones and must be addressed to an authorised dealer. See paragraph 3.10.2 of the SARB guide (July 2019):
Gifts and/or donations from non-residents
Any foreign assets received by a resident from a non-resident as a gift or donation must be declared to an Authorised Dealer and be repatriated to South Africa. Alternatively, a fully motivated application to retain the assets abroad must be submitted via an Authorised Dealer to the Financial Surveillance Department.