‘Tis the season for festive giving – and tax

It’s the festive season and many of us will be looking to spread the cheer through generous gifts to loved ones and worthy causes. These gifts often have tax consequences, though, and in this article, we outline how, with a little tax planning, you can ensure that your generosity isn’t diluted.

Understanding the basics of donations tax

In South Africa, donations tax is a levy on what is called the gratuitous transfer of property – in simple terms, a tax on gifts. It applies when you give away assets or waive debts without expecting anything in return. As the donor, you are responsible for the tax, but both the donor and the recipient may be liable if the tax is unpaid. The tax is payable even if the recipient resides outside of South Africa. If you’re a South African tax resident, any gifts you make worldwide can be subject to donations tax (a non-resident, on the other hand, generally isn’t subject to this tax when giving a gift to South African residents).

Fortunately, not every gift triggers a tax bill. Each taxpaying person has an annual tax-free gifting allowance of R150,000, meaning that you only incur donations tax once your total gifting in a year exceeds this amount.

Above that annual amount, a flat 20% donations tax is levied on the value of taxable gifts, which the donor must pay. There’s also a lifetime element: over the course of a donor’s life, the first R30 million in taxable gifts are taxed at 20%, and any cumulative gifts beyond that are taxed at 25%. (Importantly, exempt gifts don’t count toward that R30 million threshold. For example, your tax-free gifts to your spouse or charity (discussed below) won’t eat into the R30 million lifetime bracket.) In essence, the donations tax system mirrors estate duty rates in that it encourages individuals to plan large transfers of wealth either during their lifetime or at death under similar tax limits.

When and how to pay? Timing is crucial: if you do make a taxable gift, you have 30 days to report and pay the donations tax to the South African Revenue Service (SARS). This involves submitting an IT144 form (now available via SARS’s eFiling or online query system) and ensuring that the 20% tax is settled promptly. Failing to do so can result in penalties or interest, so your year-end generosity should always be followed by a conversation with your tax adviser or accountant.

Where your gifts are exempt from tax

Some important exemptions let you give more without paying donations tax, namely:

• Gifts to a spouse or life partner: In perhaps the most powerful exemption, any amount you give to your spouse carries no donations tax. Whether you’re married in or out of community of property, you can freely transfer assets or cash to your husband or wife. This exemption even extends to long-term life partners – the tax law recognises these relationships for donations tax purposes as long as you can show the partnership is a permanent one. In practice, this means you can rebalance your estates or share assets between them without incurring gift tax.
• Maintenance and support: Holiday generosity often includes helping family. If you’re covering reasonable living expenses for someone you support, such as paying rent or university tuition for a child, these payments can be considered maintenance rather than a gift and thus are not subject to donations tax. The key here is reasonableness: routine support, such as groceries, school fees, or medical bills, typically qualifies, but buying a luxury asset (a sports car for your teenager, for instance) would not. South African tax authorities have discretion in judging what constitutes genuine support versus a gift, so it’s wise to err on the side of caution.
• Public benefit organisations (charities): Gifts to registered charities not only warm the heart,  they’re also tax-free. Donations to approved public benefit organisations (PBOs) are exempt from donations tax and even capital gains tax that might otherwise apply if you’re giving away an asset. On top of that, if the charity issues you a Section 18A certificate (as most well-known South African nonprofits can), you can deduct the donation from your taxable income (up to 10% of your income) for the year.
• Certain cross-border gifts: If you’re someone who has recently become a South African tax resident (for example, perhaps you’ve relocated to South Africa but still hold substantial assets abroad), there’s a valuable one-time provision: you can donate overseas assets that you owned before becoming a South African resident, for the first time, without incurring donations tax. The catch is that those assets must stay outside of South Africa and not be routed through South Africa when gifted.

Other tax considerations

When gifting, it’s not only donations tax that you need to consider. Attribution rules should also be borne in mind. The “attribution rule” for income and capital gains states that if the money given is invested and earns income (or capital gains), SARS can tax those earnings back in the hands of the donor, if the income and or gains was generated because of the donation.

Ultimately, this legislation was designed to prevent donors using another person’s lower tax rate as a shelter. These rules potentially apply when gifts are made to minors, non-residents (persons and structures), trusts, companies and in some instances, even spouses. Make sure to consult your wealth manager or tax adviser before proceeding.

The gift of giving wisely

If there’s one message this festive period, it’s that thoughtful planning can make your generosity go further. By using exemptions to their full advantage and understanding the rules, you ensure that your loved ones (or favourite causes) receive the maximum benefit from your gifts, with minimal leakage to the taxman.

Finally, remember that while tax is an essential factor, it shouldn’t overshadow the core reason we give: to benefit our family, friends, and communities. A holistic approach that considers tax, legal and personal factors is best. Before making any substantial gifts, consult with your wealth manager or tax adviser. With their guidance, you can celebrate the season of giving confident that you’re spreading joy in the most tax-efficient manner possible.

Note to readers:

This article was written with the assistance of artificial intelligence, based on material provided by the Tax and Fiduciary team. The article has been checked and edited.

The article has been updated to reflect the increase in the donations tax threshold in the 2026/2027 Budget, from R100,000 to R150,000.