Page 21 - Test 1 Slides - 2. Donation Tax

DONATION TAX

Illustrative example -solution

• If Barry decides to make a further donation to the trust, you will have to
establish if he has made a cash donation or if he has waived a portion of the
loan owed by the trust. Waiving part of a loan is often done by utilising the
R100 000 (or portion thereof – the remaining balance, if any) annual

exemption from donations tax. If this is the case, the waiver of the loan will
have capital gains tax implications for the trust (paragraph 12A of the Eighth
Schedule), or it might have section 19 implications.

• Note that, if it constitutes a donation or a deemed donation, neither
paragraph 12A of the Eighth Schedule nor section 19 of the Income Tax Act will
be applicable. If he makes a cash donation after the previous donations have

been made, but before 28 February 2018 (the end of the year of assessment,
i.e. the date of the deemed donation in terms of section 7C), he can make a
donation of R120 000 without paying any donations tax, as it will be paid out
of the joint estate. Therefore, his donation will be R60 000 and he will still

have a section 56(2)(b) exemption of R60 000 that he may utilise. Bizzie, on
the other hand, might have to pay donations tax if she has no portion of the
section 56(2)(b) exemption available. If this is the case and he has utilised the

entire R100 000 annual exemption, he will pay donations tax on the full value
of the deemed donation in terms of section 7C.

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