Page 48 - Donation Tax & VAT class slides

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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