Donations tax: Everything you need to know

Article summary

• Donations that exceed R100 000 will be subject to donations tax.
• The tax rate is 20% for donations lower than R30 million, and 25% for donations higher than R30 million.
• Donations that come in the form of a loan are exempt.

Investing in your first home is an exciting event, but for many first-time home buyers, it’s a dream that remains out of reach.

That is unless someone — whether their parents or another benefactor — chooses to help them take their first step onto the property ladder.

A donation can come in the form of a property or funds that can be used as a deposit to secure a home loan.

However, the donation may be subject to donations tax.

What is donations tax?

A tax that is payable to SARS on the donation of any property above R100 000 in value.

Who pays donations tax?
The person or company donating the property.

The person donating the property must be a South African resident. Non-residents are not subject to donations tax.

How much is the donations tax?
Since 1 March 2018, the tax rate is 20% on donations below R30 million and 25% on donations above R30 million.

This tax rate remains the same as of June 2022.

When must donations tax be paid?
Donations tax is payable at the end of the month following the month in which the donation was made.

Who is liable for unpaid tax?
If the donor fails to pay the tax within the payment period the donor and donee are jointly liable.

How do I pay donations tax?
After making the donation, complete the donation tax return and submit it to your nearest SARS branch together with your proof of payment.

What if the donation comes in the form of a loan?
This will exempt it from donations tax, which only applies if nothing is given in return for the gifted funds.

Exemptions from donations tax

There are four categories of exemptions:

1. A donation made to a spouse; an approved public benefit organisation; or any sphere of government is exempt. A donation that is cancelled within six months from the date it took effect is exempt.
2. In the case of a donor who is not a natural person (for example, companies and trusts), the exemption is limited to casual gifts not exceeding R10 000 per year of assessment.
3. The first R100 000 of property donated in each year of assessment by a natural person is exempt from donations tax.
4. So much of any bona fide contribution made by the donor towards the maintenance of any person. This exemption is limited to what the Commissioner considers reasonable.

Formalising the agreement

When deciding which path to follow, it is important that all parties involved are comfortable with the arrangement.

It is advisable to draw up a formal document to ensure all family members are on the same page as to whether the money is a gift or a loan, and what the terms of the agreement are.

Once it’s time to take your first step on the property ladder, with or without the help of a donation, ooba Home Loans can help secure a home loan with low interest rates. We submit your application to multiple banks, allowing you to compare the deals they offer and choose the best one.

We also offer a range of tools that can make the home buying process easier. Start with our Bond Calculator, then use our Bond Indicator to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.