Donations Tax and property:

Donations tax is an area of some confusion when it come to buying property, comments Sifiso Msomi in the second part of his 3 articles on tax and property.

“Donations tax becomes applicable when the donor donates an immovable property to a donee,” he explains.

A natural person may make donations of up to R 100 000.00 a year without attracting donations tax. Donations tax will be calculated at 20% on the market value of the property. The R100 000.00 as mentioned above will be taken into account when doing this calculation.

Where any property is disposed of for a consideration, which in the opinion of SARS, is not an adequate consideration, it is deemed to have been disposed of under a donation to the extent of the inadequacy. “This normally arises when parties, particularly relatives, conclude a "sale" which in effect is a donation,” adds Msomi. For example, a father "sells" to son an immovable property which is valued at R 1 500 000.00 for R 500 000.00 which is clearly well below the market value. SARS will insist on 2 valuation reports in respect of the property and will see the transactions for what it really is – a donation and not a sale. Donations tax and transfer duty will be payable.

“It is also important to note that it is the donor who pays the donations tax,” concludes Msomi.