Category: PART V – Donations Tax (ITA)

Section 57B (ITA) – Disposal of the right to receive an asset which would otherwise have been acquired in consequence of services rendered or to be rendered

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57B.  Disposal of the right to receive an asset which would otherwise have been acquired in consequence of services rendered or to be rendered

 

(1)     This section applies where-

(a)     a person (“the employee”) has agreed to render services to another person (“the employer”);

(b)     the whole or part of the compensation for those services is to be paid by the employer in the form of an asset as defined in paragraph 1 of the Eighth Schedule; and

(c)     prior to the employee becoming entitled to that asset, that employee disposes of the right to the asset to another person.

(2)     For purposes of this Act, where subsection (1) applies—

(a)     that disposal must be disregarded and that employee must be treated as having acquired that asset on the date that it would otherwise have been received by or accrued to him or her for an amount of expenditure equal to the amount included in that employee’s gross income under paragraph (ii) of the proviso to paragraph (c) or under paragraph (i) of the definition of “gross income”; and

(b)     that employee must be treated as having disposed of that asset to that other person by way of donation for an amount received or accrued equal to the expenditure contemplated in subsection (2)(a), and that other person must be deemed to have acquired that asset for expenditure equal to that same amount.

[Section 57B inserted by section 32(1) of Act 20 of 2021 effective on 1 March, 2022 and applicable in respect of the disposal of the right to receive an asset on or after that date]

Section 61 (ITA) – Extension of scope of certain provisions of Act for purposes of donations tax

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61.    Extension of scope of certain provisions of Act for purposes of donations tax

 

For the purposes of the donations tax –

 

(a)     any reference in paragraph (a) or (e) of the definition of ‘representative taxpayer’ in section 1 to the income of any person or to the gross income received by or accrued to or in favour of any person shall be deemed to include a reference to property disposed of by any person under a donation or to the value of such property, as the context may require;

 

(b)     ……….

 

(c)     ……….

 

(d)     the reference in paragraphs (b) and (c) of the definition of “representative taxpayer” in section 1 to the income under the management, disposition or control of an agent or to income which is the subject of any trust, as the case may be, shall be deemed to include a reference to any property disposed of under a donation which is under the management, disposition or control of the agent or to property disposed of under a donation which is the subject of the trust, as the case may be;

 

(e)     ……….

 

(f)      ……….

 

(g)     ……….

[Paragraph (g) added by section 25 of Act 90 of 1962, substituted by section 29 of Act 90 of 1988 and deleted by section 3 of Act 23 of 2015 effective on 8 January 2016]

Section 62 (ITA) – Value of property disposed of under donations

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62.    Value of property disposed of under donations

 

(1)     For the purposes of donations tax the value of any property shall be deemed to be –

 

(a)     in the case of any fiduciary, usufructuary or other like interest in property, an amount determined by capitalizing at twelve per cent. the annual value of the right of enjoyment of the property over which such interest was or is held, to the extent to which the donee becomes entitled to such right of enjoyment, over the expectation of life of the donor, or if such right of enjoyment is to be held for a lesser period than the life of the donor, over such lesser period;

 

(b)     in the case of any right to any annuity, an amount equal to the value of the annuity capitalized at twelve per cent. over the expectation of life of the donor, or if such right is to be held by the donee for a lesser period than the life of the donor, over such lesser period;

 

(c)     in the case of a right of ownership in any movable or immovable property which is subject to a usufructuary or other like interest in favour of any person, the amount by which the fair market value of the full ownership of such property exceeds the value of such interest, determined –

 

(i)      in the case of a usufructuary interest, by capitalizing at twelve per cent. the annual value of the right of enjoyment of the property subject to such usufructuary interest over the expectation of life of the person entitled to such interest, or, if such right of enjoyment is to be held for a lesser period than the life of such person, over such lesser period;

 

(ii)     in the case of an annuity charged upon the property, by capitalizing at twelve per cent. the amount of the annuity over the expectation of life of the person entitled to such annuity, or, if it is to be held for a lesser period than the life of such person, over such lesser period; or

 

(iii)    in the case of any other interest, by capitalizing at twelve per cent such amount as the Commissioner may consider reasonable as representing the annual yield of such interest, over the expectation of life of the person entitled to such interest, or, if such interest is to be held for a lesser period than the life of such person, over such lesser period;

 

(d)     in the case of any other property, the fair market value of such property as at the date upon which the donation takes effect: Provided that in any case in which, as a result of conditions which in the opinion of the Commissioner were imposed by or at the instance of the donor, the value of any property is reduced in consequence of the donation, the value of such property shall be determined as though the conditions in terms of which the value of the said property is reduced in consequence of the donation, had not been imposed.

 

(1A)  Where any company not quoted on any stock exchange owns immovable property on which bona fide farming operations are being carried on in the Republic, the value of such immovable property shall, in so far as it is relevant for the purposes of determining the value of any shares in such company, be determined in the manner prescribed in the definition of “fair market value” in section 55(1).

 

(2)     For the purposes of paragraphs (a) and (c) of subsection (1) the annual value of the right of enjoyment of a property means an amount equal to twelve per cent. upon the value of the full ownership of the property which is subject to any fiduciary, usufructuary or other like interest: Provided that –

 

(a)     where the Commissioner is satisfied that the property which is subject to any such interest could not reasonably be expected to produce an annual yield equal to 12 per cent on such value of the property, the Commissioner may fix such sum as representing the annual yield as may seem to him to be reasonable, and the sum so fixed shall for the purposes of paragraphs (a) and (c) of subsection (1) be deemed to be the annual value of the enjoyment of such property;

 

(b)     where the property which is subject to any such interest consists of books, pictures, statuary or other objects of art, the annual value of the right of enjoyment shall for the purposes of paragraph (a) of subsection (1) be deemed to be the average net receipts (if any) derived by the person entitled to such right of enjoyment of such property during the three years immediately preceding the date on which the donation took effect.

 

(3)     Where for the purposes of subsection (1) any calculation is required to be made over the expectation of life of any person, such calculation shall, in the case of a person who is not a natural person, be made over a period of fifty years.

 

(4)     If the Commissioner is of the opinion that the amount shown in any return as the fair market value of any property is less than the fair market value of that property, he or she may fix the fair market value of that property, and the value so fixed is deemed for the purposes of this Part to be the fair market value of such property.

 

(5)     In fixing the fair market value of any property in terms of subsection (4), the Commissioner shall have regard inter alia –

 

(a)     to the municipal or divisional council valuation (if any) of such property;

 

(b)     to any sworn valuation of such property furnished by or on behalf of the donor or the donee; and

 

(c)     to any valuation of such property made by any competent and disinterested person appointed by the Commissioner.

 

63.  ……….

Section 64 (ITA) – Rate of donations tax

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64.    Rate of donations tax

 

(1)     The rate of the donations tax chargeable under section 54 in respect of the value of any property disposed of under a donation shall be-

 

(a)

 

(i)      20 per cent of that value if the aggregate of that value and the value of any other property disposed of under a taxable donation on or after 1 March 2018 until the date of that donation does not exceed R30 million; and

[Subparagraph (i) substituted by section 35(1) of Act 23 of 2020 deemed effective on 1 March, 2018]

 

(ii)     25 per cent of that value to the extent that that value is not taxed under subparagraph (i); or

[Paragraph (a) substituted by section 5 of Act 21 of 2018 effective on 1 March 2018]

 

(b)     such percentage of such value as the Minister may announce in the national annual budget contemplated in section 27(1) of the Public Finance Management Act, with effect from a date mentioned in that Announcement.

 

(2)     If the Minister makes an announcement contemplated in subsection (1)(b), that rate comes into effect on the date determined by the Minister in that announcement and continues to apply for a period of 12 months from that date subject to Parliament passing legislation giving effect to that announcement within that period of 12 months.

[Section 64 substituted by section 30 of Act 90 of 1988, amended by section 19 of Act 36 of 1996 and substituted by section 59 of Act 17 of 2017 effective on 18 December 2017]

Section 54 (ITA) – Levy of donations tax

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54.    Levy of donations tax

 

Subject to the provisions of section 56, there shall be paid for the benefit of the National Revenue Fund a tax (in this Act referred to as donations tax) on the value of any property disposed of (whether directly or indirectly and whether in trust or not) under any donation by any resident (in this Part referred to as the donor).

“Donee” definition of section 55 of ITA

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“donee” means any beneficiary under a donation and includes, where property has been disposed of under a donation to any trustee to be administered by him for the benefit of any beneficiary, such trustee: Provided that any donations tax paid or payable by any trustee in his capacity as such may, notwithstanding anything to the contrary contained in the trust deed concerned, be recovered by him from the assets of the trust;

“Fair market value” definition of section 55 of ITA

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“fair market value”, means –

 

(a)     the price which could be obtained upon a sale of the property between a willing buyer and a willing seller dealing at arm’s length in an open market; or

 

(b)     in relation to immovable property on which a bona fide farming undertaking is being carried on in the Republic, the amount determined by reducing the price which could be obtained upon a sale of the property between a willing buyer and a willing seller dealing at arm’s length in an open market by 30 per cent;