Question

Alen is a sole proprietor who has been running his business for the past few years. Alen has decided to donate money to his two brothers (Charlie and Jake) and his sister, Chelsea. He subsequently donates R30 000 to Charlie, R42 000 to Jake and R200 000 to Chelsea. Alen believes that that these donations will not be subject to donation tax as each donation is below R 100000 exemption in terms of s56(2) (b) of the Income Tax Act 58 of 1962 . He has approached you to confirm if he will be entitled to first R100 000 exemption of the donations made in terms of S56(2) (b) of the Income Tax Act and if there will be any donation tax for each of the above transactions. Show all calculations.

Answer 1

Alen can apply the R100,000 exemption to the total R272,000 donated to his siblings, leaving R172,000 subject to potential donations tax according to South African tax laws.

Alen, as a sole proprietor, is contemplating the tax implications of his generosity to his siblings, based on the South African Income Tax Act. To confirm the possible donation tax consequence, it's important to look at Section 56(2)(b) of the Income Tax Act 58 of 1962, which provides an annual exemption for donations tax. This Act stipulates that any natural person is entitled to a donations tax exemption of up to R100,000 per year on donations they make.

In Alen's case, the donations made to his siblings are R30,000 to Charlie, R42,000 to Jake, and R200,000 to Chelsea. If we sum these amounts, the total donated is R272,000. Considering Alen is entitled to the R100,000 exemption, we need to calculate the amount subject to donation tax by subtracting the exemption from the total amount donated: R272,000 - R100,000 = R172,000. This remaining amount may be subject to donations tax at the current rate specified by South African tax law.

Alen would be entitled to the first R100,000 exemption of the donations made, but the cumulative total of gifts to Chelsea, Charlie, and Jake exceeds this exemption, resulting in R172,000 potentially being subject to the appropriate donations tax rate.