Donations tax exists for exactly one reason: without it, estate duty would be voluntary — give everything away the week before you die. The 1955 reforms therefore built a tollgate on the road out of the estate, deliberately priced at the estate duty rate.
1 Mar 2017: s 7C arrives — interest-free trust loans become a recurring annual deemed donation. 1 Mar 2018: the 25% tier above R30m of cumulative lifetime donations, matching estate duty's new tier to the percentage point.
Budget 2026 lifted the annual exemption from R100 000 to R150 000 — the first increase since 2008. A couple can now move R300 000 a year out of their combined estate, tax-free, forever. The 20%/25% rates are unchanged.
A donation triggers two taxes on the donor, in the same month, for the same gift: donations tax under s 54, and CGT — because para 38 deems the donor to have disposed of the asset at market value, cash or no cash. And para 38 has a twin: sell the asset to your child cheaply and s 58 taxes the shortfall as a donation while para 38 still taxes the gain on full market value. Move the consideration slider and watch both deeming provisions close the trap.
Selling assets to your trust on an interest-free loan account used to be the estate freeze. Section 7C ended it: the interest you don't charge, measured at the official rate (repo + 1%), becomes a deemed donation on the last day of every tax year — for as long as the loan stands. Not once. Annually.
20%/25% donations tax plus CGT at market value — the model above. Expensive today, but every rand of future growth escapes the estate and compounds in the donee's hands, outside the s 3 net forever.
Cash of R150 000 a year: no donations tax (s 56(2)(b)), no CGT (cash has no gain). Twenty years of discipline moves R3m — plus all its growth — out of the estate at a total tax cost of nil. A married couple runs two lanes.
Sell to the trust on loan account: no donation today (it's a loan), CGT still fires on the disposal — and s 7C then meters the outstanding balance annually. Repaying the loan via the free lane (R150 000/year of waived debt) is the classic, and now heavily scrutinised, escape route.
| Question | Give it now (donations tax) | Keep it until death (estate duty) |
|---|---|---|
| The transfer levy | 20% / 25% above R30m of cumulative lifetime taxable donations since 1 Mar 2018. | 20% / 25% above R30m of dutiable value — identical by design. The gatekeeper and the gate charge the same toll. |
| The shield | R150 000 per year, renewable forever — plus full spouse (s 56(1)(b)) and PBO (s 56(1)(h)) exemptions. | R3.5m once (s 4A, frozen since 2007) — plus s 4(q) for the spouse. The annual lane compounds; the abatement does not. |
| The CGT event | Now — para 38 at market value, with only the ordinary R50 000 exclusion. | At death — para 40 at market value, with the enlarged R440 000 exclusion and roll-over to the spouse. |
| Future growth | Escapes: growth after the gift belongs to the donee and never enters your estate. | Trapped: every year of growth compounds inside the dutiable estate, taxed at death. |
| Who pays, and when | The donor, in cash, by the end of the following month — while receiving nothing for the asset. | The estate, after death — when the donor no longer needs the money but the heirs' liquidity does. |
| Trap | The error | The correct treatment |
|---|---|---|
| Forgetting Channel A | Computing donations tax and stopping. | Para 38 makes the donation a deemed disposal at market value — CGT runs alongside, on the same gift, payable by the same donor. Two computations or half the marks. |
| The bargain sale | "There was consideration, so there is no donation." | s 58: property disposed of for inadequate consideration is deemed donated to the extent of the shortfall — and para 38 still deems proceeds at full MV for CGT. Both halves of the discount are caught. |
| The two R-exclusions | Deducting R150 000 in the CGT computation, or R50 000 from the donation. | R50 000 (para 5) lives in Channel A; R150 000 (s 56(2)(b)) lives in Channel B. Different Acts' worth of distance between them — same discipline as R440k vs R3.5m at death. |
| The tier | Applying 20%/25% to this year's donations only. | The R30m threshold is cumulative lifetime taxable donations since 1 March 2018 — s 64(1). A donor who crossed it years ago pays 25% from the first rand of this year's taxable donation. |
| Who the exemptions belong to | Giving the R150 000 exemption to a company or trust donor. | R150 000 is for natural persons only; other donors get R10 000 of casual gifts (s 56(2)(a)). And donations by public companies are exempt altogether (s 56(1)(n)). |
| Maintenance | Taxing a parent's support of a student child as a donation. | Bona fide maintenance is exempt under s 56(2)(c), to the extent the Commissioner considers reasonable. School fees are not a tollgate event. |
| The donee's base cost | Giving the donee the donor's old base cost. | The donee acquires at market value (para 38(1)(b)) — the donor was taxed on the growth, so the donee's clock restarts. Contrast the spouse: para 67 rolls the old base cost over instead, because no one was taxed yet. |
| PBO vs s 18A | "It's a charity, so the donation is also income-tax-deductible." | Two different approvals. Every s 18A organisation is a PBO, but not every PBO has s 18A status. PBO approval (s 30) opens the donations-tax gate (s 56(1)(h)) and the CGT gate (para 62); the s 18A deduction — capped at 10% of taxable income, valid receipt required — needs the narrower s 18A approval. Donating to your church is toll-free at both gates, but usually not deductible. |