National Treasury has proposed tightening SA’s donations tax rules by limiting the long-standing tax exemption for transfers between spouses where the receiving spouse is a non-resident for tax purposes.

IoL reports that the proposed amendment, contained in the Draft Taxation Laws Amendment Bill published for public comment on 30 July, aims to curb tax avoidance arrangements involving a small number of high-net-worth individuals who use staggered tax emigration to reduce or eliminate tax liabilities.

According to Treasury's Explanatory Memorandum, the arrangement allows the tax-free transfer of wealth offshore, undermining the purpose of the inter-spousal exemption and the capital gains tax regime while eroding SA's tax base.

Under the proposed amendment, the inter-spousal donations tax exemption would only apply if the receiving spouse is a SA tax resident at the time the donation is made.

If the recipient spouse is a non-resident, the unlimited exemption would fall away. 

IoL reports that donations could instead be subject to the existing donations tax regime, including the annual R150 000 exemption for individuals, with tax levied at 20% on cumulative donations of up to R30m and 25% above that threshold.

The proposal remains in draft form and is subject to public consultation, with comments closing on 28 August.

The draft Bill advises affected taxpayers to review residency dates, assess transfers made since the proposed effective date, consider the donations tax and capital gains tax implications separately, retain supporting documentation and valuations, and evaluate future cross-border asset transfers carefully before the legislation is finalised.

Full IoL report