Can you still reduce your loans to trusts with tax-free donations?
~ Written by Phia van der Spuy ~
October 14th, 2021
You can donate R 100 000 (the annual Donations Tax exemption applicable to each South African resident individual) a year without paying Donations Tax (Section 56(2)(b) of the Income Tax Act). In effect, the exemption allows a couple to donate R 200 000 a year to a trust or other beneficiaries without incurring any taxes. However, you cannot accumulate this exemption. If the exemption is not used in one tax year, it cannot be carried through to the next tax year. It is, therefore, important to make use of the exemption every year. You can also use the R 100 000 annual Donations Tax exemption applicable to each South African resident individual to reduce your loan to a trust, which is an asset in your estate, until the loan is fully repaid. For as long as the loan has a balance outstanding, trust assets are at risk, as a liquidator or executor may have the trust assets liquidated for the trust to settle the outstanding loan. However, be mindful that SARS may now apply Capital Gains Tax as a result of such ‘waiver’.