Do South Africans have to pay tax on birthday presents?

You may want to think twice before you gift your 21-year old with a brand-new Mercedes Benz.

This is according to David Thomson, senior legal adviser at Sanlam Personal Finance, who said that SARS might ask whether you’re being generous because you can afford it or, if you’re being ‘shady’ and dodging creditors and donations tax.

“It could go either way, depending on your income and credit status,” he said.

“On the other side of the proverbial coin, should someone kindly donate you a house, you might want to double check that they’ve paid the 20% donation fee they owe SARS otherwise that’s going to come out of your pocket if your benefactor hasn’t settled it up within six months.”

The difference between gifts and donations

Thomson said that while ‘gifts’ and ‘donations’ are interchangeable terms, the context in which they are used is important.

Gifting means the giving of a genuine gift (for example a ‘present’) that fits within your means and lifestyle and usually marks a celebration, he said.

“If you owe your creditors or are in arrears with SARS, then obviously the ‘gift’ – especially if it’s an expensive car, house or Rolex, for example – will be investigated,” he said.

“A donation differs a bit in that it comes with tax and isn’t linked to an occasion. You can make a donation or donations up to R100,000 in value, tax-free, annually. More expensive donations are subject to a 20% donations tax.”

Thomson said that if a parent gifts a child a flat, for example, the question will be whether this is normal maintenance in line with the parent’s wealth and desire to furnish his or her child with somewhere to live whilst at university, or an extravagant purchase that doesn’t fit with the parent’s financial profile.

“People need to be careful that gifts are appropriate and aligned with an occasion,” he said.

Donations are commonly perceived as giving to a worthy cause or part of estate planning and setting beneficiaries up for life.

For example, you could take out an endowment policy for your child and ‘donate the premiums’ tax-free, providing these are under the allotted R100,000 per annum, Thomson said.

Gifts don’t always come free

Thomson said that property transfer fees, conveyancing fees, deeds office fees (for property), securities transfer fees (for shares) all still apply to gifts and donations, and are usually for the recipient’s pocket.

It depends on what is being given and how it’s given, he said.

There’s no cost for transferring an endowment from one person to another. “But, when a property is given, even though its purchase price is R0, its transfer duties and conveyancing fees are based on the market value of the property, according to a professional valuation,” Thomson said.

If you receive a donation exceeding R100,000 in value, you’ll need to be more cautious, he warned. “Make sure the giver pays the 20% donation fee within the stipulated six months, otherwise SARS will expect you, as the recipient, to pay this.”

Your annual tax return form from SARS requires you to declare all donations given and received.

“Just make sure the gift is appropriate to your lifestyle and means and recognises a special event in some way – that all helps to prove it’s genuine, should SARS audit you.

“If you’re making a donation over R100,000, always consider the tax side of things and take advice from a financial professional,” Thomson said.

Read: How much it costs to go into debt counselling in South Africa

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Do South Africans have to pay tax on birthday presents?