Whilst individuals and businesses are still trying to model their property dealings in line with the revamped Transfer Duty Act, another revised tax law commenced on 1 March 2020. The revised provisions of the Capital Transfer Tax Act (Act), which levies donations & inheritance tax, came through the Capital Transfer Tax Amendment Act 2019 promulgated on 28 August 2019 (Amendment Act). The law could not function without a commencement date. The Minister of Finance & Economic Development, Honorable Dr T Matsheka signaled the commencement of this new Act through a government gazette dated 3 February 2020. Coincidentally, that is also the commencement date of the new Transfer Duty Act.
Whilst the Act predominantly concerns itself with taxing donations and inheritances, the amendments contained in the new law also exempt certain immovable property transactions when donated to or inherited, mainly by citizens. To achieve this, the Amendment Act borrows a lot from exemptions stipulated in section 20 of the Transfer Duty Act. The Act also abolishes some of the provisions in the old law, particularly the sections which taxed gifts on weddings, marriages and inheritance of household goods.
Synopsis of the tax
Donation tax is a tax that is levied on donations received by any person where the value of the property exceeds the new threshold of P25 000 in a tax year. Donations may take any form including but not limited to cash, livestock, immovable property and shares. The tax is also levied on inheritances of property of any kind except if there is a specific exemption. For the record, transfers of any property between living spouses or from a late spouse to surviving spouse do not trigger the tax. The tax is payable by companies at 12.5% of the value of the property whilst individuals are taxed on a sliding scale, with the highest rate being 5%. The tax is payable in line with the due dates applicable to income tax.
Expansion of exemptions
The Act is adopting all exemptions that currently exist in the Transfer Duty Act. The transfer Duty Act only deals with immovable property and the new exemptions to donations & inheritance tax strictly relate to such properties. Below is a summary of the key exemptions brought about by the new law:
- No tax on heirs: Currently, any heir to an estate (save for surviving spouses) is subject to inheritance tax on so much of the value of the property in excess of P 100 000 that devolves to them on inheritance. Technically, if a parent passes on and a child inherits a house, the child is expected to pay inheritance tax on transfer of the property. This has been causing a lot of financial challenges in inheritances as most heirs did not have money with which to pay the tax. The new amendment will lessen the financial burden that heirs faced on such inheritances, which will facilitate smooth transfer of immovable property on inheritances.
- First time home-owners: First time citizen home-owners will also be exempted from the tax when immovable property devolves to them, usually through donations from parents and well-wishers. This applies to both residential property and undeveloped land and this will enhance estate planning through tax-free donations of immovable property by parents/well-wishers to the first time home-owners.
- The under-privileged: Currently, transfers of any property to destitute or disabled persons, orphans under the age of 18 as well as to institutions taking care of the above-mentioned classes of persons is subject to the tax. This has been abolished by the said Amendment Act in recognition of the fact that such entities/persons predominantly survive on donations. As such, no donations or inheritance tax will be applicable on transfers of immovable property to the donees stated above, provided that BURS would have enlisted them as approved donees.
- Divorcees: Divorcees will also be exempt from the tax when they take over the portion of immovable property previously owned by their ex-spouses.
The challenges
The above-mentioned changes obviously make property transfers much easier for those covered by the exemptions. Whilst the law is an obvious welcome development, it still levies donations tax on all NGOs such as religious and charitable institutions despite the fact that they survive on donations. Chances of non-compliance with the law are rife as such organisations are usually cash-strapped. BURS will have to step-up its monitoring systems if it is to enforce compliance with the law.
Jonathan Hore is the Managing Tax Consultant of Aupracon Tax Specialists and feedback can be relayed to jhore@aupracontax.co.bw or 7181 5836. This article is of a general nature and is not meant to address particular matters of any person.