Section 7C of the Income Tax Act finds application where a person makes an interest-free loan to a trust, and that person is a connected person of that trust. The difference between the actual rate and the official rate (provided the loan bears interest at a rate lower than the official rate - currently 7.75%), will be deemed to be a donation to the trust and taxed at 20% (twenty percent) in the hands of the connected person.
A concern for many taxpayers are that they will not be able to accurately calculate the donations tax payable and SARS’s failure to update its systems to be in line with Section 7C is not helping the declaration and payment process.
Donations tax must be paid to by the last day of the month following the month in which the donation was made. SARS argued that the declaration process “is not that difficult”, but it may consider an extension on a case-by-case basis.
The payment of the donations tax can only be done in terms of a “credit push” option on SARS’s e-filing system. The challenge is that, following the payment via e-filling, the taxpayer must make an attendance to the nearest SARS branch, complete a donations tax form (IT144), and submit same with the relevant proof of payment to allow SARS to complete the donations tax return.
SARS did agree that current process will be an extensive administrative exercise and advised that it has future plans to modernise the current system. For now, taxpayers will have to live with the administrative monster in respect of donations tax.