It is common practice that as people we give or exchange gifts as a way of celebrating events, acknowledging, or recognising one another’s success. In some instances, gifts are a token of appreciation or symbol of affection. However, in the eyes of the tax man, such innocent gestures may actually represent a tax liability.
So, does this mean there will be tax to pay when you give your friend a bottle of champagne as a birthday present? Certainly not! The tax laws actually provide that certain personal gifts trigger tax. Allow us to unfold what the tax law says about gifts and help you understand the gifts that trigger donations tax. As a tax firm, we intend to demystify the technical jargon applicable to the issue at hand and enhance your understanding of tax matters.
Generally, a gift is anything given willingly to someone without receiving any payment. On the other hand, tax laws do not use the term “gift” but talk about “property,” rather.
Technically, the definition of property is wide and encompasses almost anything that has a monetary value, including shares, money, cars, electrical goods, jewellery, cattle, immovable property, and foreign currency. In tax terms, when a person receives a gift, this is construed as receipt of property.
Having established what constitutes gifts in tax laws, let us turn to taxation of the said gifts. The Capital Transfer Tax Act levies tax on what it classifies as a “gratuitous disposal of property”. The word “gratuitous” means something obtained without charge or payment, i.e. for free. The Act further defines the terms “donor” and “done” to represent the giver and the recipient of the gift, respectively. It is from such definitions that the term Donations Tax arises.
It is clear from this deciphering of the terms used in the Act that a “gratuitous disposal of property” refers to instances where any person gives another person a gift, whether it is cash, movable or immovable property, or any valuable property, for free. As such, that gift is liable to donations tax. At this moment, you are probably thinking about the gifts that you received or gifts you intend to give. Is every gift taxable? Let’s find out.
Are all gifts taxable?
Fortunately, the tax law has provisions which exempt certain gits from tax. Such exemptions include gifts exchanged between spouses. Other exempted donations include gifts which are outside Botswana when the receiver is also not resident in the country. It is practically impossible to enforce compliance of such tax as the payer is outside our borders. Also included under the exemptions is property or value of property given to a person who is less than 18 years for their maintenance and education. Lastly, inherited immovable property is exempt from tax in the hands of the heirs.
The tax bearer
Now that we are clear about the gifts that attract tax, it is imperative to note that the respective tax is levied on the beneficiary or recipient of the gifts. Tax on donations is one of the least known taxes in the country and as a result very few people pay the tax. But the fact that tax on donation is not commonly enforced does not exonerate people from the tax liability. Just to reiterate what we have stated, if you receive a free car, shares, cash, a plot or farm from anyone who is not your spouse, you have to pay Donations Tax except if you can prove that the transaction is exempt.
It is vital that people should bear in mind that some gifts actually trigger tax. In the case of non-exempt immovable property, non-payment of tax may be problematic in the future where the recipient would want to register the property in their name. Such registration will only be done if tax is paid on the receipt of the property. However, gifts valued below P25,000 are exempt from donations tax.
The team at Tax Fountain, your go-to tax consultants, hopes that you found this article useful. Should you require further assistance or to join our free tax WhatsApp group, please contact us using the details below. Disclaimer: This is a general analysis. Tax advice is recommended if critical decisions linked to this article have to be made. Contact us on firstname.lastname@example.org or 311 6269/+267 760 910 79.