Is donations tax due where a parent gives his house to a child?
23 March 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: My clients
wish to "donate" their houses to their 2 children (before they die)
and I have explained that the assets (houses) must be donated at the market
value. Then they have to pay donations tax within 3 months of the donation.
They were told that the only "cost" is conveyancing and they went to
SARS, where a consultant said they only have to pay donations tax if it is a
cash donation. I advised that the donation is of an asset - cash or kind
(shares/unit trusts/car/or a house/property) and that donations tax is then due
after the first R 100 000.
Is donations tax due where a parent
"donates/gives" his house to a child - and the name is changed at
Deeds Office (the child is an adult)?
A: It certainly is not correct that donations tax is only
payable "if it is a cash donation”.
In terms of section 54 donations tax is payable on the value
of any property disposed of (whether directly or indirectly and whether in
trust or not) under any donation by any resident. Property means any right in or to property
movable or immovable, corporeal or incorporeal, wheresoever situated and a
"donation" means any gratuitous disposal of property including any
gratuitous waiver or renunciation of a right.
We assume that the property is not subject to a fiduciary,
usufructuary or other like interest. For
purposes of donations tax the value of any property is the fair market value of
such property as at the date upon which the donation takes effect. According to the Act the concept of
"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.
It must be remembered that a value is also declared on the
Note that if SARS is of the opinion that the amount shown in
any return (the IT144) as the fair market value of any property is less than
the fair market value of that property, they 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.
In fixing the fair market value of any property s mentioned
above, SARS will have regard inter alia-
to the municipal or divisional council valuation
(if any) of such property,
to any sworn valuation of such property
furnished by or on behalf of the donor or the donee; and
to any valuation of such property made by any
competent and disinterested person appointed by the Commissioner.
We agree with your own view, but must make some
comments. You stated that "they wish to
donate their houses”. The R100 000
(cumulative annual exemption) is available to each person in respect of each
year if not used for other donations.
The date for payment of the donations tax is no longer to be made 3
months after the donation, but must be made by the end of the month following
the month during which a donation takes effect.
Disclaimer: Nothing in this query and answer should be construed as
constituting tax advice or a tax opinion. An expert should be consulted for
advice based on the facts and circumstances of each transaction/case. Even
though great care has been taken to ensure the accuracy of the answer, SAIT do
not accept any responsibility for consequences of decisions taken based on this
query and answer. It remains your own responsibility to consult the relevant
primary resources when taking a decision.