If you, as the donor, give property to your brother while you are still alive, you will generally be liable for Donations Tax in terms of the Income Tax Act 58 of 1962. This tax is levied at a flat rate of 20% on the fair market value of the property at the time of the donation.

Section 54 of the above-mentioned Act establishes the framework for Donations Tax in South Africa. It defines a “donation” as any gratuitous disposal of property or any gratuitous waiver or renunciation of a right.

In this case, gifting a property to your brother while you're still alive qualifies as a donation under this section, and is therefore subject to Donations Tax, unless a specific exemption applies.

Speaking of Section 56 of the said Act, donations tax shall not be payable in respect of any property which is disposed of under a donation

Some of the common exemptions under Section 56(2) include:

• Section 56(2)(a): The first R100,000 of property donated by a natural person in a year of assessment is exempt.
• Section 56(2)(b): Donations between spouses are fully exempt.
• Section 56(2)(c): Donations to approved public benefit organisations (PBOs) are exempt.
• Section 56(2)(e): Donations made by companies under certain group structures may be exempt.
• Section 56(2)(j): Bona fide maintenance contributions are not regarded as donations.

In the case of donating a property to your brother, none of the exemptions above would fully apply (except for the R100,000 annual threshold, if not already used).

It is important to note that, in terms of Section 1 of the Income Tax Act, where the donor and the donee are siblings, they are regarded as connected persons. Consequently, SARS is obliged to assess the donation based on the fair market value of the property as at the date of the donation, regardless of whether any actual or nominal consideration is paid.

According to Section 60 of the Income Tax Act 58 of 1962, the Donations Tax amount must be paid by the end of the month following the month during which the donation takes effect. For example, if the donation takes effect on 15 July, the tax must be paid by 31 August.

SARS may, however, grant an extension, allowing payment over a longer period if formally requested and approved.

It is important to understand that the South African Revenue Service (SARS) actively monitors donations made between connected persons, including family members such as siblings. Attempting to evade Donations Tax by transferring property to relatives without properly declaring the transaction and paying the applicable tax is illegal and can result in severe consequences.

SARS requires that all donations, especially those involving property, be reported accurately and that the fair market value of the property be used to calculate the tax owed. Failure to comply may lead to:

• Heavy penalties and interest on unpaid tax.
• Possible legal action.
• Increased likelihood of an audit and reassessment.

To avoid these risks, always ensure that your property donations are transparent, comply with tax laws, and that Donations Tax is paid promptly.

Donating property to family members involves complex tax rules and potential pitfalls. To ensure compliance and avoid costly mistakes, it is strongly recommended that you:

• Consult a qualified tax professional or estate planner before making any property donations.
• Obtain a professional valuation of the property to accurately determine its fair market value.
• Contact SARS or visit their official website for up-to-date information on Donations Tax regulations and filing requirements.

Taking these steps will help protect you from unexpected tax liabilities and legal issues, giving you peace of mind when making important decisions about your property.