Tax implications

[Softbase]

Hi all,

My Mom is getting almost nothing on her investment, so I was thinking - what if she bombed all her money into my bond and I pay her what I pay the bank instead.
The idea is not for me to "score" but for my Mom to benefit rather than the bank.

Except for personal stuff like "what if I loose my job etc" are there any pitfalls like tax implications for either parties?
Any other comments or advice I need to be aware of?

Thanks a lot

 

[supersunbird]

Well, what is your current interest rate on your bond? And will you increase what you pay if the interest rate goes up?

 

[Softbase]

Probably around 8.1% on the bond and my Mom gets under 5%.
Yes - I'll adjust to follow the rate unless my Mom is too kind
Just wondering if she or me will be taxed if a large amount comes into the bond account. Or any other funnies.

 

[supersunbird]

If know there is a limit of some kind (R100 000?) on gifts, but since its not a gift put a loan... well, I don't know about the tax part, but sounds feasible.

 

[Billy]

Draw up a loan agreement.

You Mother should declare the interest that she receives, you do not have a tax liability as a result of the arrangement.

Will you pay the capital sum back to her in one hit, or pay it back monthly?

 

[GMAN03]

If you draw it up in writing as a loan with the interest rate stated then your mom will be taxed on the interest as with any other interest income. Section 10(1)(i) gives natural persons an exemption on interest income of R23 800 for persons under 65 years of age and R34 500 for persons 65 years and older.

As the amount coming into the bond account is then capital in nature, it is not "gross income" as defined in section 1 of the Income Tax Act so you should have no tax implications there.

 

[Softbase]

Thanks for the advice - sounds fair that she should pay tax on the income since I'm sure she pays tax on it now (the lower amount).
I worked out that I could alomst give her double she is getting now.
She will not settle my whole bond.

I will not give her anything back as such since it would be my inherintance anyway when she pass on and I figure she has less years left than the age of my bond (yes that sounds bad but she is very old already and we have to be honest).
Even if she stays alive until after the bond is paid off I will continue to pay her the same amount - that is kinda the deal (would be a blessing to pay her if she is still alive by then, so we all 'win').

Glad that there is no tax implications for me.

How about the R100,000 thingy - or does it not matter since she will pay tax on the income anyway?

Given the above - is there still reason for a loan agreement?

Thanks again

 

[GMAN03]

The R100k is for Donations Tax purposes under section 56(2)(b). I'll quote from it as follows: "Donations tax shall not be payable in respect of so much of the sum of the values of all property disposed of under donations by a donor who is a natural person as does not during any year of assessment exceed R100 000"

Given this, the implication is that there will only be no donations tax consequences if all of your mom's donations for the tax year do not exceed R100k. If the amount which she will be giving to you is more than that then this section is a no-go and donations tax will be levied at a rate of 20% of the value of the donation. However, if the amount is less than R100k then you can also make the interest payments as "donations" back to your mom in which case they should also not attract any tax consequences.

You will have to consider the specific circumstances, for example, the amount of money at play here, whether your mom can use the full interest exemption or whether it is already used up by other interest income.

 

[Softbase]

Wow - could become complicated.
Thanks for the advice I not have enough info to take it further.

Cheers

 

[Billy]

Always best to have things in writing, especially with family.

 

[Softbase]

True

 

[Gaz{M}]

Why not pay her in cash - no Tax implications. Do SARS really have armies of people watching everyone's bank accounts?

You would be flabergasted at the "parallel economy" in places like Durban, where cash is king.

 

[GMAN03]

They're probably reading this right now

 

[Softbase]

They're probably reading this right now

Heehee

Problem with cash is that I'm over 700km away

 

[BloodBurner9000]

Bitcoin

Edit : not so serious but could be a solution for some, although money still has to get in and out of bank accounts which in the case of several thousand rands is the same problem as cash

 

[Billy]

Why not pay her in cash - no Tax implications. Do SARS really have armies of people watching everyone's bank accounts?

You would be flabergasted at the "parallel economy" in places like Durban, where cash is king.

You are quite wrong. There are still tax implications. Or are you suggesting not declaring the interest?

 

[Softbase]

Or are you suggesting not declaring the interest?

I agree she will have to declare it to be legal. Jail time will ruin her

 

[Gaz{M}]

or you could "pay for stuff" for her in place of certain monthly payments etc. Just saying, don't give the taxman every cent. They waste most of it.