The saying goes that we should pay Caesar what he is due and not what he demands. To achieve this in tax planning, estate planners use donations as one of the ways in which to effectively and legally help individuals reduce the taxable values of their estates. Donations of up to R100 000 per year can be used to reduce estate duty.
However, not all donations are exempt from donations tax. It is important to enlist the help of an estate planning or tax professional to properly plan, manage and control the implementation of a strategy to minimise tax through donations.
Principal exemptions for donations tax include donations between spouses, donations to charitable, ecclesiastical and educational institutions, and certain public bodies limited to certain thresholds. Donations of up to R100 000 will also not be taxed, nor will donations of assets already situated outside of South Africa, subject to certain conditions. Donations where the recipient will not benefit until the death of the donor are also not taxable.
Donations deemed taxable – which can include the disposal of property are taxed at a flat rate of 20% on the value of the donation, payable within three months after the donation. By donating assets and incurring donations tax at the time, the tax paid can reduce a person’s estate value, which may result in an estate duty saving.
There are many important aspects to an estate plan, like donations tax, that many people have not yet considered. Ecsponent Financial Services is supporting the National Wills Week initiative this September by offering helpful estate planning information. They are also offering South Africans the opportunity to have their wills drawn up at no cost during the month, by registering a request on Ecsponent’s website.