Are gifts taxable or not?
29 May 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
listened to the above SAIT webinar last week. Please could you clarify
whether birthday gifts are taxable or not? According to the presenter
they are not taxable. I checked on the SAIT website and found an article
which states that they are taxable. I am a bit confused now.
answer to such a question is a complex one. As taxpayers bear the onus of
proof in the event that SARS challenges their view, many employers are wary of
not treating any gift as part of remuneration.
consequences of a donation (or gift) are not specifically dealt with in the
Income tax Act. As there is a receipt one must apply the principles of
the definition of gross income to determine if it will have tax
consequences. Our courts have laid down the law in this regard.
According to Judge Smalberger (in CIR v Pick ‘n Pay Employee Share Purchase
Trust) "... any receipts accruing to the Trust were not intended or worked for,
but purely fortuitous in the sense of being an incidental by product.
They were therefore non-revenue. That makes them accruals of a capital nature
falling outside the definition of "gross income" in the Income Tax
Act, and therefore not subject to tax.” Judge Southwood in CSARS v Wyner
agreed with this and stated the principle as follows: "This means that receipts
or accruals will bear the imprint of revenue if they are not fortuitous, but
were designedly sought for and worked for...”
On that basis
(i.e. the gift is capital in nature) the employer will be entitled to exclude
it from remuneration (as it is not income then). The problem is that
paragraph (c) of the definition of gross income in section 1(1) of the Income
Tax Act, specifically includes in (gross) income any amount, whether
voluntarily given or not, in respect of services rendered. At issue then
is whether or not the gift was granted "as a benefit or advantage of or by
virtue of … employment or as a reward for services rendered or to be
rendered…” Judge Howie (in the Stevens case) said "…there is no material
difference between the expressions ‘in respect of’’ and ‘by virtue of’ in paragraph
(c). They connote a causal relationship between the amount received and
the taxpayer’s services or employment.” (The reference to paragraph (c)
is to the paragraph in the definition of gross income). We submit that
the same principal will apply in this instance. In other words, if it was
granted to the person in her as an employee the causal relationship
that you referred to failed to address this issue and generally assumed that
the gifts are in respect of services rendered. It may well not be the
case, as was made out by the presenters, but the parties (both employer and
employee) must remember that they bear the onus to prove that a gift was not
given in respect of services rendered and that is often difficult to do.
that SAIT merely provides guidance.
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.