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In-need Welfare Donations Within Families
- 08 May 2024
- Accounting
- The Tax Faculty Tax Specialist
This article is based on tax law for the year ending 28 February 2025.
1. Background and Facts
Client A is considering avenues for financial aid for her son, who grapples with mental health challenges, rendering him unable to work. Despite being unable to work and thus not earning a salary, the son receives rental income totalling R95,750 annually.
2. The Problem
What will the tax implications be for both the parents (Client A) and the son, if the parents make annual donations more than R100 000 to their son?
3. Applicable Law
Income Tax Act No 58 of 1962 (ITA), sections 56(2)(b),(c)
4. Application of the Law to the Facts
The donor is liable for Donations Tax, which is calculated at a flat rate of 20% on the value of the donation or gift, up to R 30 million. If the donation exceeds R 30 million, then the amount over and above R 30 million will be taxed at 25%.
A donation will be exempt if the total value of donations for a year of assessment does not exceed R100 000 of property donated. In other words, you can make multiple donations in a tax year, and if the total value of the donations doesn't exceed R 100 000, you won’t have to pay any Donations Tax at all.
However, there are certain exemptions and in terms of section 56(2)(c) of the Income Tax Act 58 of 1962, donations tax shall not be payable in respect of so much of any bona fide contribution made by the donor towards the maintenance of any person as the Commissioner considers to be reasonable (section 56(2)(c)). While this provision is not limited to a specific amount, this exemption is limited to what the Commissioner considers reasonable.
Hence, if the Commissioner deems the donation from each parent as a reasonable contribution towards their son's maintenance, the amount will be exempt from donations tax in terms of section 56(2)(c).
Assuming the amount received from his parents is a donation as defined, the donation or gift, is 100% tax-free in the hands of the son (the donee). There's no tax consequence for him as a beneficiary but must declare the donation received in his ITR12 tax return as an “Amount Considered Non-Taxable.” This is to make sure that he declares all his income to SARS, including the non-taxable amounts.