R100,000 Every Year. Tax Free. To Your Children. Most South Africans Never Use It.

What Is Donations Tax?

Donations tax is a tax levied when a South African resident disposes of property by way of donation. The tax is paid by the donor — not the recipient. The rates are:

• 20% on cumulative donations up to R30 million
• 25% on cumulative donations above R30 million

Donations tax exists to prevent wealthy individuals from avoiding estate duty by simply giving everything away before they die. Without donations tax, you could transfer your entire estate to your children at any time and pay no tax at all. Donations tax closes that loop — but it does so generously, because it comes with meaningful exemptions that every South African should be using.

What Is Exempt — The Most Important Exemptions

The R100,000 Annual Exemption

Every natural person — every individual South African — can donate up to R100,000 per year completely free of donations tax. This exemption applies per donor per tax year. It is not per recipient. A parent with three children can donate R100,000 in total tax free — not R100,000 to each child. But both parents each have their own R100,000 exemption — so a married couple can together donate R200,000 per year tax free.

The exemption does not roll over. If you do not use it in a given year, it is lost permanently. It is a use-it-or-lose-it opportunity that resets every year on 1 March.

Donations Between Spouses

Donations between spouses are fully exempt from donations tax — no limit, no cap. A husband can donate R5 million to his wife at zero donations tax. This exemption exists because spouses are treated as an economic unit — transferring wealth between them is not considered a taxable transfer in the same way as transferring to a third party.

Approved Public Benefit Organisations

Donations to approved Public Benefit Organisations (Section 18A) are exempt from donations tax. If you donate to a registered charity, school, place of worship or qualifying non-profit, no donations tax is payable — and you may also be entitled to an income tax deduction.

Bona Fide Maintenance

Payments made for the maintenance of persons who are legally entitled to maintenance — children, a spouse after divorce — are exempt from donations tax. School fees, medical costs, and living expenses paid for a dependant do not constitute a taxable donation.

The Power of R100,000 Per Year — The Numbers That Matter

The annual exemption is one of those provisions that looks modest on the surface but compounds into something remarkable over time. Let us look at what consistent use of this exemption can achieve:

That last column is the one that matters. R4 million transferred tax free — and every rand of it also reduces the parents' combined estate, saving a further R800,000 in estate duty at 20%. The total benefit of 20 years of consistent annual donations for a married couple with children is not just R4 million transferred. It is R4 million received by the children plus R800,000 not paid to SARS. Nearly R5 million in total value — from a mechanism that costs nothing to implement except the discipline to do it every year.

Using the Exemption to Reduce Trust Loan Accounts

For business owners who have a trust, the annual donations tax exemption is not just a wealth transfer tool — it is an estate planning essential. Here is why.

When you transferred assets into your trust, the trust recorded a loan owed to you. That loan account is an asset in your personal estate — subject to estate duty at 20% when you die. The underlying assets are in the trust and excluded from your estate. But the loan account remains.

By donating R100,000 per year to the trust — specifically to reduce the loan account — you eliminate R100,000 of estate duty exposure every year, tax free. After 15 years, a R1.5 million loan account is completely gone. The estate duty saving on that R1.5 million is R300,000. And not a cent of donations tax was paid along the way.

This is the single most important estate planning action most South African business owners with a trust are not taking — and the longer it is delayed, the more of the loan account remains in the estate when death occurs.

The Critical Role of Time — Why You Cannot Wait

Donations tax planning is entirely dependent on time. The exemption is annual. It does not accumulate. You cannot do five years of donations in one year. You cannot do twenty years of donations in the last year of your life.

Every year that passes without using the annual exemption is a year of opportunity that closes permanently. The R100,000 that was available in 2020 and not donated in 2020 is gone. It cannot be reclaimed. It will never come back.

Contrast the person who starts at 45 with the person who starts at 60. The person who starts at 45, donating R100,000 per year for 20 years, transfers R2 million tax free and saves R400,000 in estate duty. The person who starts at 60 and lives to 75 transfers R1.5 million tax free and saves R300,000. The 15-year difference in start date costs R500,000 in total benefit — forever.

The time to start is always now. Not next year. Not when the accountant reminds you. Now — because next year's opportunity is not available yet, and last year's is already gone.

How to Do It Correctly — The Practical Process

Donations tax is self-assessed. The donor is responsible for calculating, disclosing and paying the tax. The process:

1. Make the donation — transfer R100,000 (or your intended amount) to the recipient or to the trust to reduce the loan account
2. Document it correctly — prepare a deed of donation or a written record of the donation with date, amount, donor, recipient and purpose
3. Submit IT144 — the donations tax return must be submitted to SARS
4. Pay within 3 months — if donations tax is payable (i.e. if you have exceeded your annual exemption), it must be paid to SARS within three months of the donation date
5. Record in accounting records — if donating to a trust to reduce a loan account, the donation must be properly recorded in both your personal records and the trust's financial statements

Getting this right — particularly the documentation and the trust accounting entries — is exactly the kind of work Your Accountant® handles for clients. A donation that is not properly documented can be challenged by SARS. A trust loan account reduction that is not correctly recorded creates confusion in the estate at death and can result in disputes.

The Combined Strategy — Estate Duty and Donations Tax Working Together

The most powerful estate planning outcome comes from combining the annual donations tax exemption with a correctly structured trust. Here is the full picture for a business owner who takes action now:

• Business assets transferred into trust — future growth accumulates outside the estate
• R100,000 donated annually to the trust to reduce the loan account — removing estate duty exposure systematically
• Life insurance restructured to pay to named beneficiaries — excluded from estate
• Retirement annuity maximised — excluded from estate and income tax deductible
• Will drafted to maximise spouse bequest on first death — zero estate duty on first death

The result, over 20 years, is an estate that is a fraction of what it would have been without planning — and children who inherit what their parents built, rather than watching a significant portion disappear to SARS.

Frequently Asked Questions