Your son is getting married and, to ensure that he and his bride have a good start in life, you have decided to give the couple a car for their wedding gift. The value of the car is R200 000.
Apart from gifts or donations to your spouse, any gifts or donations you make during a tax year of more than R100 000 in total are taxable in the hands of the donor. In other words, you will have to pay donations tax on that gift.
Johann Benadé, associate director of BDO Tax Services, elaborates: “In terms of section 56(2)(b) of the Income Tax Act, the first R100 000 of property donated in each year of assessment by a natural person is exempt from donations tax. Thus, if the groom’s father were to donate a vehicle with a cost price of R200 000 to the bridal couple, he will potentially be liable for donations tax on the excess of R100 000, assuming that he has not already made other donations during that year.”
Donations tax is 20% on amounts up to R30 million, so you would be liable for tax of R20 000 on the gift.
Benadé provides a couple of caveats to this rule: “A further assumption to note would be that, for donations tax to be applicable, the father has to be a South African tax resident, as donations tax is only payable by South African tax residents. It should also be noted that any bona fide contribution made by the donor towards the maintenance of any person would qualify for exemption from donations tax. This exemption is limited to what SARS considers reasonable. It is, however, a moot point whether the donation of a motor vehicle costing R200 000 as a wedding gift would be regarded as ‘reasonable maintenance’.”
A way around paying this tax, Benadé says, is to use a loan account. In other words, you provide the couple with a loan to the value of the car and then write off the loan over a couple of years, taking care that the annual tax-free limit for donations is not exceeded. These calculations would need to include interest on the loan, which should be at a market-related rate.
Wedding gifts from employers
In some cases, the couple may receive a gift from one of their respective employers. Here there may be tax implications for the bride and groom, as the gift may, for tax purposes, be considered as income.
Benadé says a relatively “immaterial” gift, such as a bouquet of flowers, would tend to be accounted for as a routine staff welfare expense. “In these instances, the gift would typically not be regarded as a taxable benefit in the hands of the recipient,” he says.
However, if the gift is something more significant, such as covering the cost of the wedding, or sponsoring a honeymoon, then proper consideration needs to be given to the tax implications. The gift could be regarded as part of the employee’s “gross income”, which would make it taxable, and also as “remuneration”, which would make it subject to the deduction of PAYE.
If the company put the cost of the gift through its books as a donation, it would not be tax-deductible, and the company would be liable for donations tax, depending on the total donations made by the company during the year. Benadé says a company may make tax-exempt donations of up to a maximum of R 10 000 per year. “In practice, though, donations tax are rarely paid by companies, even if the amount of R 10 000 per year is exceeded,” he says.
If, on the other hand, the company put the gift through as a cash bonus to the employee, it would be tax deductible for the company, but would then form part of the employee’s taxable income as part of his or her cost to company.