The provisions of Section 7C of the Income Tax Act referring to instances of deemed donations have now been effective for a number of years. Over that time, SARS has extended the scope of the provisions to counter different measures being adopted by certain taxpayers to escape their exposures.

For taxpayers that are in a position whereby they are deemed to have made a donation under the provisions of Section 7C, they should note that the deadline for payment of any donations tax falls on 31 March 2022. This would relate to deemed donations for the year of assessment ended 28 February 2022.

Failure to make payment of the donations tax by the due date will result in interest being incurred on the late payment of the tax.

The official rate of interest as prescribed by SARS is used when determining the value of the deemed donations. The official rate of interest at the end of February 2021 was 4.5%, but this was subject to increases resulting in a rate at the end of February 2022 of 5%. A natural person is however entitled to an annual donation tax exclusion, that being on the first R100 000 of donations made. As a result, assuming that the natural person has made no other donations, there would be no donations tax liability on a loan balance averaging in the region of R2,18 million. This is calculated on the basis that interest on a loan of that value at the official rates that applied during the February 2022 year would equate to approximately R100 000, thus utilising the annual exclusion.

Taxpayers are advised to address any of their Section 7C deemed donation exposures before the deadline, and to contact a Tax Practitioner if they require any further assistance

Eileen Goosen

Manager: Trust Department, Johannesburg

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