Capital gains tax on donations and bequests

Main01Paragraph 12(5) of the Eighth Schedule to the Income Tax Act was scrapped on 1 January 2013 and replaced with a new paragraph 12(A) which, in certain circumstances, provides relief on the payment of capital gains tax when debt is written off.

These new provisions came into effect on 1 March 2013.

In terms of these changes capital gains tax is still payable when a debt of a debtor is reduced or written off, but that there are two exceptions:

Where the amount owed to a deceased estate is regarded as the “property” of the estate (as described in the Estate Duty Act), and this debt is reduced to the benefit of the legatee or heir; and

When the debt that is written off can be regarded as a donation for the purposes of donations tax.

The relevant amendments to the law therefore determine in essence that:

It is no longer required that a donation be made in cash; and

there will be no liability for capital gains tax if the donation represents a reduction or writing off of debt for the receiving party.

The latter provision is especially to be welcomed considering the problems that have occurred in the past with the wording of wills in cases where heirs or a family trust owe a loan debt to a testator. It is now again possible to merely bequeath a loan account between a legator and a trust as a legacy to the trust, which amounts essentially to the reduction of a debt obligation of the trust.

In view of these recent changes to the Income Tax Act we once again encourage clients to make a donation in order to ensure a saving in estate duty in the longer term.

To make the most of the benefits of a donation the following should be borne in mind:

The donation should not exceed R100 000 otherwise donations tax of 20% is levied on the amount by which the tax-free limit (R100 000) is exceeded;

A book entry can simply be made in the place of a cash donation; and

The donation must be supported by a written deed of donation and, where a trust is the beneficiary, also a resolution of the trustees indicating acceptance of the donation.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.

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IC Marais

Professional experience:

IC Marais is a certified CA (SA) with public sector and private sector technical knowledge based on 5 years’ Public Sector accounting, auditing and financial management experience and 5 years audit, tax and accounting experience. Detailed knowledge of private and public sector accounting and auditing standards (GRAP, IPSAS, IFRS, IAS, ISA) and public sector financial legislation (MFMA, etc.)

He enjoys the outdoors, hunting and fishing.


Professional experience:

In 1995, Schalk started as a trainee at Warner and Newton (which became Moores Rowland in 1997 and then Mazars Moores Rowland in 2007) in Bloemfontein. In 1998, Schalk was appointed as manager at Moores Rowland, where he became a partner in 2003. Schalk received his Postgraduate Certificate in Advanced Taxation in 2006 and in 2009 he received his Certificate in the Administration of Estates.


Professional experience:

Cedric started as a trainee at Warner and Newton (which became Moores Rowland in 1997 and Mazars Moores Rowland in 2007), Bloemfontein, in 1986. After completion of his articles, he joined the Special Investigations Division of the Department of Finance (SA Revenue Services) as a senior inspector from 1990 to 1991.


Professional experience:

Lucha started her career as a tax inspector at the Inland Revenue Department of New Zealand. After this she worked in commerce in Canada, Mexico and the United States.

On her return to South Africa, she completed her CA training contract with us and has been with Newtons ever since. She became a Partner in 2012.

Apart from her CA(SA) qualification she also holds a postgraduate certificate in Advanced Taxation (2005) and has the overall responsibility for training as our Training Officer.