SARS has recently issued a draft binding general ruling on the two-tier donations tax regime (see the Monthly Listing).
Dual rate of donations tax
An amendment came into operation on 1 March 2018, to the effect that a 20% rate applies to the aggregate value of property donated as does not exceed R30 million, and a rate of 25% of that value for any excess over R30 million.
Issues arising
The following issues arise in relation to the R30 million threshold, which impact on the question whether a donations tax rate of 20% or 25% applies, being first, aggregation, and, secondly, exempt donations.
Aggregation
Over what period must the sum of all donations preceding the current donation be determined? Does one aggregate all donations ever made by a donor, even donations made before the effective date of the amendment introducing the dual rates, 1 March 2018? To do so would be to give retrospective effect to the amendment.
There is a general presumption against statutes having retrospective operation, unless there are clear indications in the statute concerned, express or by necessary implication, that retrospectivity was intended.
On that basis, SARS agrees that donations made before 1 March 2018 should not be taken into consideration in the calculation of the aggregate R30 million threshold.
Exempt donations
Does the value of all donations preceding the current donation include exempt donations?
There are two factors indicating that exempt donations must be excluded.
The first is that, under s 64(1) of the Income Tax Act, the rate of 20% or 25% must be imposed on the ‘value’ of property disposed of under a donation. Donations tax cannot be imposed on exempt donations; therefore ‘value’ in s 64(1) must, of necessity, exclude exempt donations.
The second is that s 64(1) refers to the rate of donations chargeable under s 54. The ‘value’ referred to in s 54 is subject to s 56. And the ‘value’ under s 56 excludes the value of exempt donations.
Conclusions
In the imposition of the donations tax, at the two different rates, and in the calculation of the R30 million threshold, no account is to be taken of:
- The value of property disposed of under a donation before 1 March 2018.
- The value of exempt donations.