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The 2019/2020 Budget Speech Fiscal Legislation Proposals

Publishing Date : 11 February, 2019

TUMELO RANNAU

On Monday 4th February 2019, the Minister of Finance and Economic Development (the Minister) presented the budget speech and proposed some changes to the fiscal legislation specifically the Capital Transfer Tax (CTT) Act.



For the purposes of this article we shall use the phrase “donations tax” to represent Capital Transfer Tax for ease of understanding. Donations tax is a tax charged on the recipient of a donation of any property, be it money, shares, movable goods and immovable property. The donation could happen during the donor’s lifetime or as an inheritance. The tax is charged at 5% at the highest bracket, i.e. for amounts in excess of P 500 000 in value.


The proposed changes will ensure that heirs enjoy full exemption from inheritance of household goods and personal belongings. Currently the exemption of donations tax in relation to inheritance of household goods is limited to P15, 000 of the aggregate value of inherited household goods received in a tax year (1st July to 30th June for individuals and financial year for companies). Therefore currently, if one inherits say P10, 000 worth of household goods from their uncle and P6, 000 from the grandfather, only P1, 000 (being P 16 000 less P 15 000) will be subject to donations tax.


The exemption doesn’t apply to a single donation but the aggregate donations in a tax year. Additionally, the exemption threshold of casual gifts shall be increased from an aggregate value of P5, 000 to P25, 000. Therefore if one receives P26, 000 worth of casual gifts from various sources, only P1, 000 will be subject to donations tax.


The proposed amendments will also ensure that all immoveable property exempt in terms of the Transfer Duty Act will be exempt from donations tax. It should be noted that these will include the proposed amendments as per the Transfer Duty Amendment bill to be re-tabled in March 2019. The following exemptions are contemplated in terms of the proposed Transfer Duty Amendment bill:


Transfer of property to one spouse after death or divorce
Transfer of property to another spouse or company owned by spouse where they are married in community of property
Donation of immoveable property to eligible beneficiaries in the Income Tax Act. They include donations to destitute people, institutions such as SOS, etc.
Transfer of property to heirs in terms of a will or otherwise
Transfer of property to a trust for support of a marriage by parents of spouses or the spouses (includes intended spouses)
Partitioning of property that is jointly owned

Under the Transfer Duty Act the exemption on the above situations can only be enjoyed when the properties are transferred for free without any payment. Where there is a payment involved there is no exemption for Transfer Duty. It should be noted that exemption under these circumstances is not automatic and therefore an application has to be lodged with the Commissioner General detailing the type of exemption sought. It is expected that where an exemption certificate is issued under the Transfer Duty Act it will automatically cover exemption under the Capital Transfer Tax Act for those who are eligible for both.


The civic society organizations including religious organizations are advised to take advantage of these proposed exemptions and lobby for automatic exemption as currently only associations recommended for exemption by the Minister enjoy this. This is normally sought by application to the Minister.


Prior to the amendment of the Second Schedule to the Income Tax Act (in July 2004), these organizations used to enjoy exemption from donations tax when they were under Part 1 of the schedule. After being moved to Part II of the schedule they lost this exemption. In terms of lobbying, organizations such as political parties and unions are the only ones that enjoy these exemptions from donations tax as they are in Part I.


Part I of the Income Tax Act deals with exempt persons, that is, entities or individuals exempt from Income Tax and Part II deals with exempt income, that is, source of income that is exempt from Income Tax. Persons exempted from income tax do not submit income tax returns while persons whose income is exempt from income tax are required to submit returns and pay donations tax. Therefore contrary to popular belief that civic society organizations are tax exempt, they are required to register for tax and file income tax returns and pay donations tax.

Writes in personal capacity

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