It is often found that spouses donate cash or assets to one another. Just like any other transaction, the tax consequences of the transfer of cash or assets should be considered. Typically, in South African income tax law, where one person donates cash or assets to another person, donation tax arises (unless it falls within one of the exempt categories). Of particular relevance is that any donations between spouses (which includes life partnerships and customary marriages) are exempt from donations tax. In other words, any asset (or cash) donated from one spouse to another would be exempt from donations tax. It is also noteworthy that natural persons can donate cumulatively up to R100,000 worth of assets to any other person in a single year of assessment without attracting any donations tax. This R100,000 exemption is, however, not necessary when the donation is between spouses.
This is, however, not the end of the matter, as two further considerations are necessary. Firstly, the donation of an asset may also have capital gains tax consequences (as an asset is disposed of). Where an asset is disposed of by one spouse to another (whether as a donation or not), a rollover occurs, where the disposal is deemed to take place at the base cost of the asset. In other words, no adverse capital gains tax consequences arise. At the same time, though, the spouse acquiring the asset will also not receive a “step up” in base cost. The rollover is mandatory and spouses do not have the option to elect out of it. Secondly, the receiving spouse must consider whether the amount received constitutes part of its “gross income” to be subject to the normal tax brackets. In this regard, the receipt of a donation is not designedly sought after and will generally be capital in nature. In other words, no amount will be included in the “gross income” of the receiving spouse.
Other tax considerations, such as Transfer Duty, may also come into play depending on the nature of the asset donated. It is clear that even a simple transaction, such as a cash donation or asset donation between spouses, has numerous tax consequences to consider. Should there be any uncertainty, we recommend that you approach your tax advisor.