Lambert Roberts | Manager | Expatriate Tax Team | Tax Consulting SA | mail me |
Recent communication by the South African Revenue Service (SARS) signals an increased focus on high-wealth individuals. It highlights how these individuals fund trusts, companies and similar structures. This applies especially where arrangements may trigger donations tax exposure.
A notice issued by SARS’ High Wealth Individual Unit is dated 27 March 2026. It may signal a more stringent compliance approach to donations and donations tax. Although the notice forms part of ongoing engagement with HWI taxpayers, it largely restates existing principles. However, it highlights specific areas that SARS will likely review more closely in practice.
Considering this, taxpayers should proactively reassess how they have funded their structures. This is particularly important where loan accounts, valuations or historic transactions play a role. Such reassessment ensures that these arrangements can withstand SARS scrutiny.
Funding structures – where risk arises
Wealthy taxpayers often rely on trusts, companies and similar structures. They use these structures to preserve and grow capital. In many cases, they introduce value through direct transfers, loan accounts or transactions. However, these transactions may not always reflect market conditions. In addition, companies often act as intermediaries in these arrangements.
Depending on the facts, these transactions may fall within the definition of a “donation” in the Income Tax Act 58 of 1962. This applies especially where a gratuitous element exists or where value is not fully accounted for.
In the notice, SARS states that the High Wealth Individual Unit periodically shares guidance. It aims to provide clarity and certainty on individuals’ tax obligations. It also aims to support compliance. In this instance, the communication outlines key aspects of donations tax. These include what qualifies as a donation, the applicable rates, when exemptions apply and who must pay the tax.
Section 7C and other areas under the spotlight
In practice, Section 7C of the Act has shifted significantly. It has moved from a known rule to an active enforcement and interpretation focal point. This shift is particularly evident within the high-wealth individual environment. It reflects a stronger focus on high-wealth individuals.
Importantly, the shift does not stem from new legislation. Instead, it reflects how broadly SARS now applies and interrogates the provision. As a result, SARS will likely scrutinise several arrangements more closely. These include interest-free or low-interest loans to trusts under Section 7C.
SARS may deem such loans to constitute a donation by the lender. It will also examine transactions concluded below market value. In addition, it will review the use of companies to facilitate indirect donations. While these arrangements have historically supported legitimate structuring, they now form a primary audit focus.
Donations tax – no change, greater enforcement
From a technical perspective, the donations tax framework remains unchanged. However, SARS now applies it more rigorously in practice. This reinforces the ongoing focus on high-wealth individuals.
By way of reminder, donations tax is levied at 20% on the cumulative value of donations up to R30 million. Thereafter, it increases to 25%. The primary liability rests with the donor. However, the donee may become jointly liable if the tax remains unpaid.
The annual exemption for individuals remains capped at R150,000. A smaller exemption applies to non-natural persons.
Revisiting existing structures and SARS Audit
Although the SARS notice is not binding, it forms part of a broader compliance drive. It also reflects ongoing engagement with high-net-worth taxpayers. Based on past experience, such engagement often precedes intensified audit activity.
Against this backdrop, taxpayers should revisit how they have funded their structures. They should ensure that these arrangements are properly documented and supported. They must also align them with their underlying substance. This process includes reassessing historic loan funding. It also includes validating market value assumptions. Furthermore, it requires ensuring that documentation supports the intended tax treatment.
Non-compliance – increasing consequences
SARS now has extensive access to third-party data. It also receives trust disclosures and cross-border reporting information. As a result, it can identify inconsistencies in reported transactions more effectively.
For high-net-worth taxpayers, the consequences of non-compliance extend beyond tax inefficiency. They now include audit exposure, financial penalties and potential reputational risk.
Therefore, taxpayers must review existing arrangements carefully. They should support these arrangements with appropriate professional advice. This ensures that they remain compliant and defensible in the current environment.
