TAXATION 3B TEST 2 PREP

COMPANY GUIDE
Employee Tax
Annual salary
+Annual employers contribution
= remuneration
Less pension contributions
=taxable income Less tax per tables
Less normal rebate
Less medical credit rebate S6A - see test 1
Less additional medical expenses rebate S6B- see test 1
/12 to get per month

Provisional payments
First provisional payment
1. Start with latest preceding year to notice of assessment
2. Add 8*p.a if more than 18 months has passed between 1st of
preceding year and latest notice of assessment
3. tax per SBC Table 4. 50%

Second provisional payment

1) Start with taxable income for the year
2) Tax per SBC Table
3) less first provisional payment

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Bene ts of SBC
• A small business corporation pays favourable rates of tax on a portion of its
taxable income.

• Under section 12E (1), there is a concession on plant and machinery owned by a
small business corporation (SBC) or acquired by the SBC as purchaser under a
qualifying instalment credit agreement. If this plant and machinery is brought
into use for the first time by SBC for the purpose of its trade (but not mining or
farming) and is used by it directly in a process of manufacture or similar process
carried on by the SBC, it qualifies for a deduction equal to the full cost (100% of
the machine) in the year that plant and machinery is brought into use.

• Under section 12E(1A), a concession is granted on machinery, plant, implements,

utensils, articles, aircraft or ships (other than assets to which the 100% write-off
above applies) acquired by a small business corporation. This allowance applies
as long as the asset qualifies for the section 11(e) wear-and-tear or
depreciation capital allowance. The small business corporation may choose to
deduct, in the determination of its taxable income, either the wear-and-tear or
depreciation capital allowance (under section 11(e)) or an allowance equal to:
➡ 50% of the cost of the asset in the year of assessment during which it is or
was brought into use for the first time,
➡ 30% of its cost in the immediately succeeding year of assessment, and
➡ 20% of its cost in the year of assessment immediately succeeding that
year.

This capital allowance effectively applies to all the movable assets of the small
business corporation other than those qualifying for the 100% allowance. For
example, computers, a desk, motor vehicles and fixtures and fittings will all
qualify for this capital allowance. Where you have the option between section11
(e) and section12E, you will need to use the section that gives you the highest
deduction or results in a lower taxable income.

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TAXATION 3B TEST 2 PREP

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VAT GUIDE
Output tax
Sales- Output
★ Any product or service sold to a customer
- Section 7(1)(a): on the supply by any vendor or services supplies in the course of any
enterprise carried on by him
- Example: Sales for the period amounted to R1 123 000
Output VAT R146 478 (1 123 000 * 15/115)
★ Time of supply is earlier of invoice or payment of any consideration
- Section 9(1):
- Example: Goods set aside and paid for R15 000 in the period but invoicing and
delivery only took place after the period
Output VAT = R1957 (15 000 *15/115)
★ Sales Export is zero rated if the customer is not a VAT vendor of the Republic
- Section 11(1)(a): The supplier has supplied the goods and the goods have been exported; where
a supplier has supplied goods to the recipient in the Republic, such supply shall not be charged
at the tax rate of zero percent.
- Example: Export sales for the period amounted to R1 123 000
Output VAT R0
★ Sales to a connected person
- Time of supply is the date on which the goods was removed or made available/
service was delivered.
• Section 9(2)(a): where the supplier and the recipient are connected persons-
(i) in the case of a supply of goods which are to be removed, at the time of the removal;
(ii) in the case of a supply of goods which are not to be removed, at the time when they
are made available to the recipient; and
(iii) in the case of a supply of services, at the time the services are performed
- Value of supply is the open market value
• Section 10(4)(b): the supplier and recipient are connected persons in relation to each
other, the consideration in money for the supply shall be deemed to be the open market
value of the supply
- Example: Sales for the period amounted to R12 200, the connected person above
is a resident, is not a registered VAT vendor, and is not an employee of the
company. The sale took place on 18 February 2023, the open market value of the
goods sold was R15 000 on this date.
Output VAT R1 957 (15 000 * 15/115)
★ Journal entries
Dr Bank
Cr Output VAT
Cr Sales

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Bad debt recovered- Output

★ A debtor previously written off pays his account
★ Bad debt recovered from an export sale is not included in VAT calculations
- Section 22(2): Where any amount is at any time wholly or partly recovered by the 55 vendor,
that portion of the amount of such deduction as bears to the full amount of such deduction
the same ratio as the amount of the irrecoverable debt recovered bears to the debt written
off shall be deemed to be tax charged in relation to a taxable supply made during the tax
period in which the debt is wholly or partly recovered.
- Example: The company received R15 000 that was previously written off as
irrevocable, R12 000 is in respect of local sales and the remainder in respect of
export sales
VAT Output R1 565 (12 000*15/115)
★ Journal entries
Dr Bank
Cr Output VAT
Cr Bad debts recovered

Fringe Bene ts - Output

★ Any fringe bene t as de ned to an employee
- Section 18(3): to the extent that any vendor has or is deemed to have granted a bene t or
advantage to an employee or the holder of any of ce as contemplated in paragraph (i) of the
de nition of "gross income"
★ Time of supply is on a monthly basis (end of month) or yearly basis (last day of YOA)
- Section 9(7): The supply of goods or services which is deemed to be made by any vendor as
contemplated in section 18(3) shall be deemed to take place at the end of the month in respect
of which the cash equivalent of the bene t or advantage concerned, as determined under the
Seventh Schedule to the Income Tax Act, or a portion of such cash equivalent, is in terms of the
Fourth Schedule to that Act required to be included in the remuneration of the employee or
of ce holder to whom the bene t or advantage is granted or, where such cash equivalent is not
required to be included in the remuneration of the employee or of ce holder in terms of the
said Fourth Schedule, on the last day of the year of assessment in terms of the said Act, as
applicable to that employee or of ce holder, during which the bene t or advantage was granted
to him.
★ Value of supply except ROU vehicle is the cash equivalent of the bene t.
- Section 10(13): Where goods or services are deemed to be supplied by a vendor under section
18(3), the consideration in money for the supply shall be deemed to be an amount equal to the
cash equivalent of the bene t or advantage granted to the employee
- Example: A new laptop computer purchased to be awarded to an employee, in
recognition of their outstanding performance for R10 800
Deemed output = R1 143 ( 10 800 *15/115)
★ The following Fringe bene ts results in output tax levied:
- Asset given below market value
- ROU Asset ( see valuation for ROU Vehicle)
- Free or cheap services
★ The following Fringe bene ts do not result in output tax levied:
- Motor car given to employee, at no or little consideration (not ROU) because input
tax on motor car is denied
- Entertainment is prohibited- Section17(1)(a)
- Zero- rated or exempt supplies
- Debt waived by employer because it is a nancial service -Section 12(a)

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- Long service awards and subsidies because the supply of “money” when used as a
medium of exchange to facilitate the payment of consideration for a transaction is
not, in itself, regarded as a supply of goods or services
- Residential accommodation exempt Section 12 (c)
- Supply of meals and refreshments classi ed by SARS as entertainment
- Free or cheap holiday classi ed by SARS as entertainment
- Interest free and low interest loan because it is a nancial service-Section 12(a)
- Paying of employee loan because it is a nancial service-Section 12(a)
- Pension and medical aid contributions, bursaries and share incentives are exempt

★ Value of supply for ROU vehicle is the determined value excluding VAT x [0.3% (if
company bears full cost) or 0.6% (if the employee pays some consideration)] x
15/115 x number of months
- Section 10(13): Where goods or services are deemed to be supplied by a vendor under section
18(3), the consideration in money for the supply shall be deemed to be the amount determined
in the manner prescribed by the Minister in the Gazette for the category of motor car used -
Regulations and Notices
- The determined value is the cost of a vehicle if acquired by sale, the retail price if under a
lease, or the market value in any other case; each reduced by 15% for each completed 12
month period from the date acquired till the date the employee gained ROU
- Example: The sales manager, was granted use of a double-cab bakkie purchased
by the company on 1 December 2022, at a cost of R187 700 incl VAT. Delivery of
the vehicle took place on the same day and it was immediately given to the sales
manager for his exclusive use. The company pays for all running costs in respect
of the vehicle. The sales manager used the vehicle for the months of December
2022 and January 2023 only.
Deemed output on right of use of double-cab bakkie = R140 (R187 700 x
100/115 x 0.3% x 15/115 x 2 months)
★ Journal entries
Dr Salaries
Cr Output VAT

Insurance Indemnity- Output

★ Any amount received in compensation of a loss from an insurance
★ No VAT output implications for Indemnity payment received in respect of zero rated
supplies (including life insurance)
★ No VAT output implications for Indemnity for goods that are replaced
- Section 8(8): where a vendor receives any indemnity payment under a contract of insurance,
that payment shall, to the extent that it relates to a loss incurred in the course of carrying on
an enterprise, be deemed to be consideration received for a supply of services performed on
the day of receipt of that payment by that vendor in the course or furtherance of his
enterprise
★ Journal entries
Dr Bank
Cr Output VAT
Cr Indemnity
★ Insurance indemnity award for a motor vehicle - not a deemed supply in terms of
proviso to s8(8), as the indemnity award relates to the total reinstatement of a
'motor car' as de ned, and the input tax on this was denied on acquisition, under
s17(2)
- Section 17(2): Notwithstanding anything in this Act to the contrary, a vendor shall not be
entitled to deduct from the sum of the amounts of output tax (input tax denied) in respect of
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any motor car supplied to or imported by the vendor provided the motor car is not trading
stock
★ Example: On 1 September 2023, an employee was robbed outside the business
premises. Stock costing R5 000 was in the in the car at the time. The vehicle and
the stock could not be traced, and the company received an insurance indemnity
award of R190 000 (comprising R185 000 in respect of the stolen vehicle and R5
000 in respect of the stolen stock) on 21 February 2023 from the Insurance
Company, in full and nal settlement of their insurance claim.
Output VAT only for trading stock = R652 (5000 * 15/115)
★ Journal entries- sale of vehicle
Dr Bank
Dr Loss of sale
Dr Acc Depr
Cr Motor Vehicle

Inventory Donated- Output

★ Inventory donated is regarded under normal sales rules
- Section 18(1): deemed to have been supplied by him by way of a taxable supply by him in the
course of his enterprise.
★ Value of supply: Market value
- Section 10(7): Where goods or services are deemed by section 18(1) to be supplied by a
vendor, the supply shall, subject to the provisions of subsection (8), be deemed to be made for
a consideration in money equal to the open market value of such supply.
★ Example: Inventory on hand that cost R1 100 (including VAT) and which had an
open market value of R1 500 (throughout April), was donated to a poker club to
which the managing director’s mother was a member. The inventory was to be
awarded as prizes (with no signi cant marketing bene t expected.
Output vat = R1 6 (1500 * 15/115)
★ Journal entries- sale of asset
Dr Bank
Cr Output tax
Cr Inventory
★ Cash donated is the the supply of money supply and it is not a transaction is not, in
itself, regarded as a supply of goods or services therefore there won’t be any
output tax

Less Input tax

Purchases of any asset
★ Inventory/Machinery/Van
- Section 17(1) : Where goods or services are acquired or imported by a vendor
partly for consumption, use or supply
★ Imported Goods
- Section 7(1)(a) :VAT imposed on any import of goods
- Time of supply Section 13(1) : the date it reaches customs
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★ Imported services
- Section 7(1)(b) :VAT imposed on any import of goods
- Time of supply Section 14(2) : the date it is invoiced
- Value of supply Section 14(3): greater of the consideration paid or market value
- If it falls under salaries as de ned in enterprise it is excluded.
★ Motor Car Input tax denied
- Section 1 de nition: includes any motor vehicle of a kind normally used on public
roads, which has three or more wheels and is constructed or adapted wholly or
mainly for the carriage of passengers, but does not include-
- vehicles capable of accommodating only one person or suitable for carrying more
than 16 persons; or
- vehicles of an unladen mass of 3 500 kilograms or more;
- or caravans and ambulances; or
- vehicles constructed for a special purpose other than the carriage of persons and
having no accommodation for carrying persons other than such as is incidental to
that purpose
- Section 12(2)(c): a vendor is not entitled to deduct any amount introspect to motor
car supplied or imported to the vendor.
- Except (motor car not denied) if the motor car is bought as a taxable supply
(inventory)
★ Secondhand Goods
- Lesser of consideration paid and open market value- Section 16(3)(a)(iii)(aa)
★ Journal entries
Dr Inventory/ Machinery etc
Dr Input Tax
Cr Bank

Salaries
★ Salaries are not taxable supply Section 1 - De nition of Enterprise

Allowances (Section 8(1) ITA)

★ Travel by bus exempt/ zero rated
- Section 12(g): the supply of any service comprising the transport by any person in
a vehicle operated by him of passengers and their personal effects by road or
railway would be charged with tax at the rate of zero per cent
★ Airfare at standard rate
- International transport services are zero rated- Section 11(b)
★ Subsistence (Accommodation, meals etc)
- Accommodation and meals while on business
★ Journal entries
Dr Salaries
Dr Input Tax
Cr Bank
CA (SA)

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Entertainment
★ Entertainment goods/services is tax prohibited - Section 17(2)
★ Except for (therefore input tax is deductible):
- Vendor makes taxable supplies of entertainment
- wellfare organisation
- meals and accommodation while on business trip (see above)

Bad debts
★ Input tax on bad debts - Section 22(1)
★ Journal entries
Dr Bad Debt
Dr Input Tax
Cr Trade Debtors
Expenses
★ Rental agreements
- Section 8(11)- or the purposes of this Act, a supply of the use or right to use
or the grant of permission to use any goods (whether with or without a driver,
pilot, crew or operator) under any rental agreement, instalment Credit agreement,
charter party, agreement for chartering or any other agreement under which
such use or 45 permission to use is granted, shall be deemed to be a supply of
goods.
- Time of supply: Section 9(3) - Earlier of payment or due date
- DO NOT INCLUDE ENTERTAINMENT RENTALS
★ Water and electricity etc

★ Insurance Premiums
- Short term insurance premiums are input tax deducible
- Long term insurance is regarded as nancial services and therefore exempt
★ Bank charges are input tax deductible

★ Interest income is exempt because it is a nancial service - Section 12(a)

★ Membership fees- fees or subscriptions paid to memberships is tax prohibited

★ Journal entries
Dr Expense
Dr Input Tax
Cr Bank/ Creditor

Financial services
★ Financial services are both input and output tax exempt Section 12(a)
★ Financial services include Section 2 :
➡ The exchange of currency
➡ The issue, payment, collection or transfer of ownership of credit;
➡ the issue, allotment, drawing, acceptance, endorsement or transfer of ownership
of a debt i.e debt waived by employer;
➡ the issue, allotment or transfer of ownership of an equity
➡ The provision by any person of credit under an agreement (in this subsection
referred to as a credit agreement) whereby money or money's worth is provided
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by that person to another person who agrees to pay in the future a sum or sums
exceeding in the aggregate the amount of such money or money's worth;
➡ the renewal or variation of a debt security, equity security, participatory security
or credit agreement;
➡ the provision, taking, variation or release of a guarantee, indemnity, security or
bond i.e long term insurance premiums
➡ the provision or assignment of a futures contract through a futures exchange;
➡ the payment or collection of any amount of interest, principal, dividend or other
amount whatever in respect of any debt security, equity security, participatory
security, a credit agreement, any life insurance policy, superannuation scheme or
futures contract

Zero rated supplies

❖ Export services
❖ Supply of going concern
❖ Basic food stuff brown bread maize meal etc
❖ Fuel, certain crude oil, illuminating paraf n
❖ controlled nominals to public authority
❖ services relating to intellectual rights like patents and trademarks
❖ sale of gold coin issued by reserve bank
❖ Good supplied by vendor on behalf of a foreign company to another vendor in SA
-Only zero rated if used by recipient wholly for purposes of making taxable
supplies
❖International transport services and Insurance on it
❖Services rendered outside the republic or customs controlled area
❖Municipal rates

Registration
Register as a vendor if taxable supplies exceeds or likely to exceed R1 million at
the end of any 12 month period
Voluntarily register if turnover in 12 month period exceeds or is likely to exceed
R50 000

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 TAXATION 3B TEST 1 PREPARATION

Value Added Tax

Output Less Input

Sales Section 7(1)(a) Purchases of inventory Section 17(1)

Goods set aside and paid for Section 9(1) Purchase of second hand goods calculated
on the lesser of consideration or open
market value S16(3)(a)(ii)(a)
Sales export is zero rated under S11(1)(a) if Purchase of machinery Section 17(1)
customer is not registered VAT vendor of
Republic
Sales to connected person @ open market Purchase of motor car input tax denied
value
Bad debt recovered Purchase of van Section 17(1)
Bad debt recovered from export debtor not Rentals Section 17(1)
included S22(2) - not included for entrainment rentals
ROU vehicle (cost* 100/115*0,3% * 15/115* no Airfares for business trips local flight at
months) section 18(3) standard rate

Insurance indemnity S8(8) Travel by bus is exempt supply Section

Insurance payment relating to total
reinstatement of motor car for which input
tax is denied, therefore not deemed supply
and not taxable S8(8)
Insurance payment deems confirmation of
supply
Life insurance is exempt S8(8)
Deemed tax on fringe benefit Section 18(3)
Inventory donated S18(1) S10(7)
12(g)
Accommodation and meals while on
business trip
Car hire while non business trip denied
under S17(2)(c)
Salaries are not taxable supply Section 1 -
Definition of Enterprise
Fuel zero rated S11(1)(k)
Electricity and water
Short term insurance premiums
Long term insurance premiums exempt

Bank Charges Section 17(1)

Interest income is exempt Section 12(a)
Payment of staff membership fees
prohibited Section 17(2)(b)
Bad debts Section 22(1)
Entertainment prohibited Section 17(2)(a)

Dr Item 100/115
Cr 15% VAT input/Output Cr Liability full amount
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 BLNS: When good enter SA, invoice based -
payment basis- VAT
15% on custom duty value is based on actual VAT accounted
payments made and for when invoice
other countries:cleared by received by the vendor Last day of J,M,M,J,S,N (every 2nd month)
issued Determined
customs, 15% of ( custom by
duty value + 10 % + custom comissioner
duties+ import subcharges) Input > outpt = refundable Last day of F,A,J,A,O,D (every 2nd month)
Input< output = paybale
every month 1) taxable supplies > 30 mil p.a 2) vendor applied 3) vendor failed to
import paybale perform obligations
penalties at 10% by importor with tax periods
oer payment expemptions in last day of FA Ccompanyor trust fund
missed on 1st of sch 1
next period last day of feb farming less than 1,5 mil a year and mircro
and Aug businesses 6th schedue of ITax
taxable supply: standard (15%) Value Added
or zero rated (section 11) Tax refund= Input > outpt or submitted within 5 years banking details
oupur erraneosly paid of payment due or made providded within 90 days
output tax- section incorrectly
zero rated: vendor claims 7(1)(a) on goods input tax-
back input VAT sold deemed supplies : output Vat
on goods ceases to be a vendor: output tax payable on goods and
payble even if goods have not
bought on balances owed to suppliers not older than 12 months
export of movable being paid
goods in certian Exempt value of lesser of the cost of bringing the product into
circumstances supply: section being; or the open market price.The time of supply is
12 No input VAt can be claimed if there is no tax invoice, immediately before the vendor ceases to be a vendor.
supply for argriculture S16(2) and S20
and farming, farmers claim input Vat for goods or services wholly used for idemnity payments: cash from insurance as a result of
claim input credit the course of making taxable supplies stolen stock, vendor deemd to be in the same position
goods partially used as stock sold, thus VAT is payable on that amount.Tax
supply of gold coins examples: in the course of full input deduction if taxableuse fraction (15/115), multiplied by the consideration
Interest, making taxable is not less than 95% (insurance payout); and multiplied by percentage of loss
basic foodstuff brown Exchange of supplies, then the
currency, Debt vendor can use decuction for portion retating to (% of taxable supplies). when payment is received.
bread, maize meal etc security, Shares either:
ZERO taxable use
long-term, input Vat may nort be paid Fringe benefits : Assets given to employees, right of use
RATED fuel, cerian crude oil insurance policy for sertian items(S17(2)) of asset given to employee, services made available by
ITEMS and illuminating Donated goods
Eg; entainment goods employer to employee for private purposes. According
kerosene or services
acquired for staff, club to 7th Sch no fringe benefit: Cash salaries; all
membership fees excl allowances broad-based employee share plans
controlled animals to professional bodies and
public authority motor cars Vendor receives consideration> charge for supply of
goods or services rendered AND excess amount not
refunded to customer within 4 months, output tax on
servives relating excess amount payable. Excess refunded after four
intellectual righs like Non Supplies: output VAT payble only on months, claim the input tax credit
patents and items input The time of supply- end of the 4 month period from the
date of receiving the consideration.
trademarks VAT is claimed (input VAT denied= no output VAT
payable) eg, enterment good or motor vehicle.
 TAXATION 3B TEST 2 PREPARATION

Donations Tax
Donations tax is a tax on a gratuitous transfer of assets as opposed to income tax
SARS defines a bona fide donation as a voluntary, gratuitous gift disposed of by the
donor out of liberality or generosity, where the donee is enriched and the donor
impoverished. There may be no quid pro quo, no reciprocal obligations and no personal
benefit for the donor.
Payable by the donor if s/he is a resident of the republic- Section 59

Donation tax inclusions:

Property gifted at fair value market price at the time of donation - Section
55(1) (a), Section 62(d)
Farms fair value is always at 70% (reduced by 30%)- Section 55(1)(b)
Property sold at inadequate consideration donation tax is deemed on the
difference- Section 58(1)
Waiver of loan- Section 55(1)
Donations made by spouse married in comm of property that fall under the
joint estate is deemed to be made in equal shares by both spouses -S 57A
Usufruct- the right to enjoy the use and advantages of another's property
Valuation of usufruct and fiduciary benefit- Section 62 (1)(a)
1. Fair market value of the usufruct donated at the date of donation
2. * 12% or less as determined by the commissioner
3. Either:
a. if the donee becomes entitled to the property upon the death of the the
donor, then use these of the next birthday of the donor
b. if the right is held for a lesser period than the life of the donor then use such
period eg life of donee
4. Use life expectancy table : step 2 * present value of R

Bare dominium -is property without a right of use (usufruct). This means
that the owner of the property can only sell it with the consent of the
usufruct so as not to infringe on the usufructuary's use rights.
Valuation of bare dominium- Fair value less the usufruct value (but use
the shorter of donor and donee life expectancy in step 3- Section 62(c)
Annuities gifted not for maintenance
Valuation-Right to any annuity valued at a capitalisation of 12% over the
years the annuity is due or if it is fore a life time then the life expectancy
of the lessor of donor or donee Section 62(b)
• Use the annuity table to find the PV of R1 pa capitalised at 12%

Excluded from donations tax:

Any donation made to a spouse in terms of section 56(1)(a) are exempt from
donations tax
Donations mortis causa in terms of section 56(1)(c) are exempt from
donations tax
• when a party, acting with awareness that their death is approaching, gives something
to another party, the resulting gift is known as a gift mortis causa.
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If the donee will not receive any benefits until the death of the donor in
terms of section 56(1)(d), such a transfer is exempt from donations tax
No donations tax on gift returned within 6 months - Section 56(1)(e)
No donations tax on immovable property situated outside the republic if it
was acquired by the donor over ten years before the donation or by
inheritance Section 56(1)(g)
Donations to a political party are exempt from donations tax in terms of
section 56(1)(h).
No donations tax for the advancement of science - section 56(1)(i)
Donations to an employee as it is included in her gross income in terms of
par (c) of the gross income definition and therefore exempt from
donations tax in terms of section 56(1)(k).
No donation tax on right to use or occupy property used for farming if the
donee is a child of the donor
Donations to a PBO are exempt from donations tax in terms of section
56(1)(n) including political parties- Section 18A receipt
• Deductions in respect of donations to certain public benefit organisations are limited
to 10% of taxable income (excluding retirement fund lump sums and severance
benefits). The amount of donations exceeding 10% of the taxable income is treated
as a donation to qualifying public benefit organisations in the following tax year.

If the donor is not a natural person casual gifts that do not exceed R10
000 are exempt - Section 56(2)(a) if greater than then donation exemption
is limited to the value of property of R10 000; less than 12 months ratio
The first R100 000 of property donated in each year of assessment by a
natural person is exempt from donations tax (section 56(2)(b)).
So much of any bona fide contribution made by the donor towards the
maintenance of any person. This exemption is limited to what the
Commissioner considers reasonable (section 56(2)(c)).
Inheritance is a capital receipt and not a donation

Format
Date Amount Donee Exemption Reference Taxable

TOTAL
Taxable upto R30 million * 20%
Taxable greater than R30 million * 25%

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