A property has been purchased. A mother and son will be living in the property together. The property is being registered in the son’s name. The mother provided the funds to purchase the property. They are both adults. Is this deemed a donation from mother?
Important:
This answer is based on tax law for the tax year ending 28 February 2018.
Answer:
That is why we didn’t calculate the amount of donations tax due in the previous response. But we also believe that you didn’t have enough information to conclude on the issue. We mentioned the intention of the parties in the previous response and that is still relevant (before you can conclude).
You have now added that they will be living in the property together. Let’s for purposes of the guidance assume that the intention of the mother is to actually transfer, and gratuitously at that, the property to the son. We also accept that the mother is not the actual purchaser – in other words, the son is a party to the transaction and the transfer is done on the basis that he is a purchaser (this is relevant to Transfer Duty considerations only).
The value, for purposes of donations tax, will then depend on the nature of her right to the use of the property. It can be a usufruct or habitio and will reduce the value of the donation to the son. The limited interest will be recorded in the title deed.
We suspect that the reference to a “deemed donation” is to section 58 of the Income Tax Act. As there is no consideration here, based on our assumption, the answer would be that section 58 doesn’t find application.