The precise nature of the tax benefits available to persons who donate land in terms of the proposed Draft National Policy for Beneficiary Selection and Land Allocation will depend on the final form the policy takes, as well as the implementation of the policy. The benefits that may be available are an exemption from donations tax on donations of land, the disregarding of capital gains and losses on donations of land and a deduction of the lower of the fair market value or cost of the land on the date of donation. The potentially applicable provisions are summarised below.
Section 54 of the Income Tax Act, 1962, (the Act) stipulates that donations tax is payable on the value of any property disposed of under any donation by any resident. Section 56(1), however, provides for the exemption of the payment of donations tax in certain circumstances. For purposes of this reply, the following paragraphs are relevant.
Paragraph 62(a) of the Eighth Schedule to the Act provides that a person must disregard a capital gain or capital loss determined in respect of the donation or bequest of any asset by that person to the government in the national, provincial or local sphere. Paragraph 64D of the Eighth Schedule provides that a person must disregard any capital gain or capital loss in respect of a donation of land or right to land under a land reform initiative contemplated in Chapter 6 of the National Development Plan: Vision 2030 of 11 November 2011.
A bona fide donation of land made may qualify as an income tax deduction under section 18A of the Act if all the legislated requirements are met and, in particular:
Part II of the Ninth Schedule to the Act lists a PBA under the heading “Land and Housing” in paragraph 5(e) that reads as follows.
“The promotion, facilitation and support of access to land and use of land, housing infrastructural development for promoting official land reform programmes.”
This PBA is broader and more multifaceted than the donation of land resulting from an official land reform programme.