Reform of Donations Tax Exemption for Non-Resident Spouses

By Bruce Russel

Overview of Existing Provisions

Under current South African tax law, donations tax may apply to any donation made by a South African resident. However, section 56 of the Income Tax Act provides an exemption from donations tax for donations made by a resident individual to their spouse. This inter-spousal exemption is intended to facilitate the transfer of assets between spouses without incurring a tax liability.

Identified Issues

Recently, the National Treasury has identified tax avoidance strategies that exploit the current provisions. Specifically, individuals who intend to cease being South African tax residents have structured their affairs to delay their own change in tax residency while their spouse becomes a non-resident beforehand. In this scenario, the resident spouse donates assets to the non-resident spouse, thereby utilising the inter-spousal exemption to avoid donations tax. This arrangement not only circumvents donations tax but can also reduce or eliminate the income tax liability that would otherwise arise when ceasing residency. The National Treasury regards such practices as deliberate attempts to avoid both donations tax and income tax, that is ordinarily due when an individual ceases to be a South African tax resident.

Proposed Amendment

As detailed in Annexure C of the 2026 Budget Review, it is proposed that section 56 of the Income Tax Act be amended. The proposed change would restrict the inter-spousal donations tax exemption so that it only applies to donations made to a spouse who is a South African tax resident at the time of the donation. This amendment is intended to address the identified avoidance arrangements and preserve the integrity of the tax system. The change is scheduled to come into effect immediately on 25 February 2026.