National Treasury has proposed limiting the donations tax exemption between spouses where the receiving spouse is no longer a South African tax resident, targeting tax planning arrangements used by some wealthy emigrating couples.
National Treasury has proposed tightening South Africa'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.
The proposed amendment, contained in the Draft Taxation Laws Amendment Bill (TLAB) published for public comment on July 30, 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 South Africa's tax base.
Under the proposed amendment, the inter-spousal donations tax exemption would only apply if the receiving spouse is a South African tax resident at the time the donation is made.
