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Donations tax query


Hackster
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So an elderly relative passed away a couple of years back and left money to me and my cousins. I've been paid out - yay - but my cousins are struggling to get theirs.

 

The problem is that they emigrated to the US 20 - 30 years ago and the bank which is handling the estate says that they haven't 'emigrated properly' whatever that means, so to get their money they have two choices:

  1. Complete their emigration or
  2. Sign a third party indemnity to pay someone local. 

I'm very happy to help them with option 2 by accepting the funds and then doing a bank transfer to their US accounts.

 

The total amount in question is just over half a mil in rands. 

 

So my question is if the money is transferred into my account and then I transfer all of it to them, are there any tax/legal issues for me?

 

I haven't come close to using up my R1mil annual forex allowance so there's no problem with that. 

 

And my tax affairs are up to date and in good order. 

 

Any advice for me?

 

 

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Best to contact a Tax professional.

 

On donations, you are looking at a tax exemption on amounts up to R100 000 per tax year. Anything over that is taxed at a flat rate of 20%.

 

You could possibly look at making it an (Interest Free) loan rather as then you could possibly avoid the tax component.

 

But like I said, best discuss with a professional.

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As I understand it, their estate would have been taxed prior to bequeaths payment, so recipients don't get taxed on inheritance.

 

So you getting authorised to take receipt should not be a problem, but since there is a red flag raised by sars in terms of this transaction already, it's always wise to get professional counsel before proceeding. 

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tax consultant,,,as you say your tax is in order no sense paying with that, esp since you just trying to help, as far as I understand the law you would be "gifting it" by passing it onto another party 

get a proper consultant 

THIS. 

 

In my opinion (not professional, I'm not a tax consultant though it's an area I would like to expand into) the proceeds would be considered non taxable as they are not considered income in your hands, IE the proceeds are INHERITANCE and you would not be "donating" the funds to the other party as it's their inheritance by right. . You'd also have the papers to prove that the funds are not yours but you are just the conduit.

 

But - in order to confirm this, speak to a tax professional. They'll also show you how to show it on your tax return if necessary. 

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So an elderly relative passed away a couple of years back and left money to me and my cousins. I've been paid out - yay - but my cousins are struggling to get theirs.

 

The problem is that they emigrated to the US 20 - 30 years ago and the bank which is handling the estate says that they haven't 'emigrated properly' whatever that means, so to get their money they have two choices:

  1. Complete their emigration or
  2. Sign a third party indemnity to pay someone local. 

I'm very happy to help them with option 2 by accepting the funds and then doing a bank transfer to their US accounts.

 

The total amount in question is just over half a mil in rands. 

 

So my question is if the money is transferred into my account and then I transfer all of it to them, are there any tax/legal issues for me?

 

I haven't come close to using up my R1mil annual forex allowance so there's no problem with that. 

 

And my tax affairs are up to date and in good order. 

 

Any advice for me?

bitcoin bro...get it out of the system

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Best to contact a Tax professional.

 

On donations, you are looking at a tax exemption on amounts up to R100 000 per tax year. Anything over that is taxed at a flat rate of 20%.

 

You could possibly look at making it an (Interest Free) loan rather as then you could possibly avoid the tax component.

 

But like I said, best discuss with a professional.

I don't think that would be a option. It was practise years ago to loan rather than donate to the recipient. To avoid donations tax, write off the loan annually at an amount just below the donations tax threshold until the loan was written off.

 

Now there are anti avoidance processes in place for this and of course an exposure to Capital Gains tax when the loan is written off.

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Donations tax is not my area of expertise, but logic tells me the money was already taxed as part of the estate and therefore cannot be taxed again when bequeathed to the cousins. The will clearly shows that the cousins are the recipients of the money, so the OP is nothing more than a conduit to get the money to the cousins in the US.

 

There was a court case on this conduit principle, but I cannot think of it right now (although this involved Trusts).

 

I don't believe that there will be any tax implications, but as I said, donations tax is not my area of expertise.

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bitcoin bro...get it out of the system

Not sure if this news made it to Cape Town but City of Joburgs account was hacked last week. Basically the whole website was down etc etc. The hackers demanded 4 bitcoins to return everything to normal. Needless to say COJ never paid it.

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There was a court case on this conduit principle, but I cannot think of it right now (although this involved Trusts).

Armstrong v CIR, Ovenstone v SIR or SIR v Rosen would presumably be one of the cases you are thinking of.

 

OPs situation would draw from the Geldenhuys case and the fact that he has not received this amount for his own benefit.

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Armstrong v CIR, Ovenstone v SIR or SIR v Rosen would presumably be one of the cases you are thinking of.

 

OPs situation would draw from the Geldenhuys case and the fact that he has not received this amount for his own benefit.

 

Goodness all of those court case names gave me a bit of PTSD harking back to the good old days of these things being on damn flash cards to help remember them

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OK.....I spoke to our attorney who specialises in estates. He said the following:

 

  1. There will be no tax implications for you as this is not your money.
  2. The payment can go directly to your cousin (not via you) as long as he still has a bank account in SA and if the payment is done via that bank account. If not, you'll have to go the 3rd party route.
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I am not sure this is all that simple.

 

If the cash goes from estate -> OP -> off shore -> cousins the will need to be formally amended with a "redistribution" agreement and the cash from OP -> cousins would be a donation.

 

If the cash goes from estate ->  cousins via OP's bank account and OP's discretionary forex allowance, then it is never the OP's cash and his forex allowance is not applicable.

 

Never mind the legal issues, a lot depends on how the regulations are interpreted by SARS and the OP's Bank (on behalf of the reserve bank). Remember it is not the OP's cash and you could easily spend R5K to R10K on professional fees if the bureaucrats start asking difficult questions.

 

I think I would look for a company that specializes exporting funds for expats. There are one or two around.

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Thanks all, some great advice.

 

Spoke to a professional in this arena.

 

Their advice was that it's safe for me to transfer the funds - there are no tax implications. And there's a very clear and verifiable paper trail which confirms the process as well as the intent of all the parties concerned. And SARS isn't losing any potential tax revenue.

 

Also confirmed the logistics of the transactions with my bank, who are totally unfazed. 

 

So, I'm going to go ahead. Thanks again, some great input from you all.

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