Donations between spouses – where one has emigrated and is no longer tax resident – may become subject to donations tax if the 2026 draft Taxation Laws Amendment Bill (TLAB) is passed in its current form.
National Treasury believes a deliberate staggered cessation of tax residence by spouses is circumventing the payment of donations tax, as well as capital gains tax.
In its explanatory memorandum, Treasury says the avoidance scheme is based on one spouse becoming non-resident. The resident spouse then transfers substantial assets to the non-resident spouse tax-free.
The Income Tax Act provides for an exemption from donations tax where a donation is made to a spouse. There is currently no distinction between a resident or non-resident spouse.
Treasury argues that the arrangement results in the remaining spouse paying no or almost no CGT when he or she emigrates.
“This avoidance arrangement enables the tax-free transfer of wealth offshore, undermining the policy intent of both the inter-spousal exemption and the CGT regime, and resulting in an erosion of the South African tax base.”
Treasury wants the exemption to apply only to donations made to a spouse who is tax resident in South Africa. It believes this will neutralise the avoidance and give rise to an immediate tax liability if the donation is made to a non-resident spouse. If approved, the amendment will be deemed to have taken effect from 25 February this year.
Where is the mischief?
Deborah Tickle, an associate professor in the Faculty of Commerce at the University of Cape Town, describes the proposed amendment as “odd” given the existing rules in the Income Tax Act.
Although a donation from a resident spouse to a non-resident spouse is exempt from donations tax, there has, for some time, been no exemption from CGT where the receiving spouse is non-resident. Thus, it is not clear what “mischief” is being addressed, Tickle says.
Consequently, the resident spouse does not benefit from roll-over relief (because the transfer is made to a non-resident) and is deemed to have disposed of the asset – for example, shares – at market value. Once the remaining spouse leaves South Africa, any remaining assets are subject to CGT.
If the tax exemption on inter-spousal donations is removed as proposed, why would anyone donate to their spouse when the receiving spouse is already non-resident, because this would trigger donations tax for the resident spouse, which would not have applied if the donation been made when both spouses were resident. The CGT remains the same either way, observes Tickle.
Delano Abdoll and Mbalenhle Mahlaba, tax and legal professionals at Tax Consulting SA, note that section 9HB limits the normal rollover treatment for transfers between spouses.
When the receiver of the assets is non-resident, it triggers a CGT consequence at the time of the transfer. “This makes Treasury’s description of complete CGT avoidance less straightforward than it first appears,” they say.
The effective maximum CGT rate for individuals is 18%, and donations tax is payable at a rate of 20% if it is below R30 million, and 25% if more than R30m.
Twist of tax policy
The 2026 draft TLAB and the 2026 draft Tax Administration Laws Amendment Bill (TALAB) contain some taxpayer-friendly amendments.
A proposed amendment in the draft TALAB relating to the Voluntary Disclosure Programme (VDP) would allow taxpayers to apply simultaneously for the separate remission of interest.
In the past, the South African Revenue Service waived the penalties if a taxpayer received relief under the programme, but it did not entertain requests for the remittance of interest.
In the Medtronic case, SARS stuck to its guns and refused to consider an application for the remittance of interest after it reached a VDP agreement with the group.
Medtronic took the matter to the High Court, where it was successful. SARS appealed to the Supreme Court of Appeal, where Medtronic again achieved success. SARS then went to the Constitutional Court, where it won the day.
The Constitutional Court concluded that it would lead to a glaring absurdity to permit a taxpayer to conclude an agreement with SARS that makes provision for interest and, at the same time, to allow the taxpayer subsequently to deal with issues relevant to interest separately.
Nina Keyser, tax partner at Webber Wentzel, has noted that the proposed amendment was announced just over a year after the “hard-won” victory for SARS.
Read: VDP interest relief proposed despite recent Constitutional Court precedent
She calls it a “striking twist of tax policy”. National Treasury now proposes to do precisely what Medtronic had been asking for: namely, to create a mechanism for interest relief to be sought alongside a VDP application.
If the legislative amendment had been in place before Medtronic’s VDP application, it may have been able to seek interest remission simultaneously with its application.
“Instead, Medtronic spent years litigating through three levels of court, only for the law to be amended in a manner that may benefit future applicants in materially similar circumstances,” Keyser says.
Amanda Visser is a freelance journalist who specialises in tax and has written about trade law, competition law, and regulatory issues.
Disclaimer: The views expressed in this article are those of the writer and are not necessarily shared by Moonstone Information Refinery or its sister companies. The information in this article is a general guide and should not be used as a substitute for professional tax advice.
