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Questions and Answers
What is the gift tax rate applicable to donations exceeding R30M over the life of the donor since 01 MAR 2018?
25%
How much is the annual general exemption for a natural person under the Donation Tax Framework?
R100K per year.
In what circumstance is a donation considered to have no benefit to the donee until the donor's death?
When a donation is made in contemplation of death.
What are the conditions under which a donation of property outside of SA is exempt from the Donation Tax?
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What is the deduction limit for non-natural persons making casual gifts according to the Donation Tax Framework?
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What is the formula to determine the donation tax payable according to the specified steps?
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How is the value of property determined according to Section 62(1)(d)?
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What are limited interests according to Sections 62(1)(a) and (c)?
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What is a fideicommissary according to the definitions given?
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What action should be taken if a donation is found to be specifically exempt?
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What happens to the right of use when the usufructuary dies?
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How is the present value factor calculated when determining fiduciary or usufruct interest?
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What should be considered when determining the present value factor using life expectancy tables?
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Describe the steps to calculate the value of the bare dominium.
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How is the value of the right to an annuity determined?
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What factors are considered to find the present value factors for both fiduciary/usufruct and bare dominium?
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What is the implication of S57 regarding donations made by a company at the instance of a person?
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In a marriage in community of property, how are donations treated for property in the joint estate?
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What is the general exemption amount each spouse can claim for donations per year?
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What is the significance of S8(4)(k) in relation to donated assets?
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How does the income from donated assets affect the donor according to the deemed inclusion rules of s7?
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What formula is used to calculate the base cost if the donation tax is paid by the donor?
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Study Notes
Donation Tax Framework
- Applicable to residents donating property or making donations.
- Key provisions under Section 56 consider various donation scenarios, such as donations to spouses or cancelled donations.
Residents
- Types of Donations: Those made in contemplation of death may not benefit the donee until the donor's death.
- Special Conditions for Properties: Donations of property outside South Africa might be exempt if acquired before residency or obtained through inheritance from a non-resident.
Donation Tax Exemptions
- Natural Persons: Allowed a general exemption of R100,000 per year.
- Non-Natural Persons: Limited to R10,000 per year for casual gifts, apportioned monthly.
- Tax rate: 20%; aggregate donations exceeding R30 million incur a 25% tax on further donations since 01 March 2018.
Limited Interest - Usufructuary Interest
- Bare dominium holders own property but do not have rights to income or usage until usufruct owner’s death.
- Usufructuary can sell the property subject to existing usufruct.
- Upon the death of either party, rights of use and ownership shift according to defined terms.
Valuation Metrics
- Fiduciary/Usufruct Interest: Fair market value multiplied by a 12% Present Value (PV) factor.
- PV factors are determined by the lesser of life expectancy of the donor, enjoyment period, or a fixed period.
- Bare Dominium: Calculate with specific valuation steps including fair market value adjustments and applying PV factors.
Annuity Rights
- Valued at fair market value multiplied by 12%.
Donations Under Section 57
- Donations made by companies at someone's instance are deemed as direct donations by that person.
- Spousal donations in community of property treated as equal contributions unless properties are excluded from the joint estate.
8th Schedule and Donation Tax
- Donation tax implications for disposals at market value and income accrual to the donor are outlined in regulations.
- Capital gains/losses on assets donated to Public Benefit Organizations (PBOs) are disregarded.
Steps for Assessing Donation Tax
- Calculate donation tax payable by multiplying the donation amount by 20%.
- Subtract general exemptions from total donations.
- Assess whether donations are exempt.
- Maintain chronological donation records for the year.
Property Valuation Rules
- Fair market value used for assessing property donations as per relevant sections.
- Specific adjustments apply for limited interests and rights to annuity valuations.
Limited Interest - Fiduciary Interest
- Involves donors, fiduciaries, and fideicommissaries who may conditionally transfer assets.
- Fideicommissary option allows for property to pass to a third party upon the fiduciary’s death, providing unique ownership and control dynamics.
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Description
This quiz explores the nuances of the Donation Tax Framework as it applies to property donations made by residents. Delve into specific conditions, such as donations made in contemplation of death and their implications. Test your understanding of the tax regulations that govern such donations in South Africa.
