Donations tax is a reality and is levied at the same rate as estate duty. This is to prevent people from donating their assets in order to avoid paying estate duty.
If you gave R250,000 to your friend, it would trigger donations tax. Every taxpayer is allowed to donate R100,000 a year. Anything above this would trigger a donations tax of 20%. Your gift would therefore trigger a donations tax of 20% x R150,000=R30,000. The R100,000 exemption is based on all the donations you make in a year and not just on a specific donation.
I often come across a situation where parents want to put down a deposit on a property for their children. If the deposit is more than R100,000, donations tax will be triggered. There is a solution, though…If you want to donate more than R100,000, you can set up a loan between yourself and the person you want to give the money to. You then donate the payments needed to service and pay off the loan.
To avoid any potential tax issues regarding soft loans, the interest rate on this loan should be set to the repo rate plus 1%. Our repo rate is currently 5.5%, so you should charge an interest rate of 6.5%. You then donate the money needed to service and pay off the loan, and as long as these payments are under R100,000 a year, there should be no donations tax issues.This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R25.
Grow up
Cool story bro.