The National Treasury has proposed introducing restrictions on the tax exemption for donations between spouses if the receiving spouse loses South African tax residency status. This measure is aimed at curbing tax planning schemes utilized by certain affluent couples leaving the country.
The proposed amendment is contained within the Tax Legislation Amendment Bill (TLAB), which was published for public comment on July 30. The objective of this proposal is to prevent tax evasion schemes associated with using phased tax emigration to reduce or completely eliminate tax liabilities for a small number of high-income earners.
According to the Treasury's explanatory memorandum, this scheme allows wealth transfer abroad without taxation, undermining the purpose of the spousal exemption and the capital gains tax regime, while simultaneously depleting South Africa's tax base.
Residency Status Becomes a Decisive Factor
Under the proposed amendment, the tax exemption for donations between spouses will only apply if the receiving spouse is a South African tax resident at the time the donation is made. If the recipient is a non-resident, the unlimited exemption will cease to apply. Instead, donations may fall under the existing donation tax regime, which includes an annual exemption of ZAR 150,000 for individuals, and for cumulative donations up to ZAR 30 million, tax is levied at a rate of 20%, and above this amount—at a rate of 25%.
Although the proposal is currently in draft form and subject to public consultation ending on August 28, the Treasury suggested that the amendment take effect retrospectively from February 25, applying to donations made on or after that date.
Tax Planning Scheme Under Scrutiny
The Treasury asserts that the amendment is designed to stop a specific tax planning strategy, not routine asset transfers between spouses. This scheme involves one spouse first becoming a non-resident for South African tax purposes. Subsequently, the remaining resident spouse transfers significant assets under the current spousal exemption before themselves ceasing tax residency with a substantially smaller asset base.
This could reduce the amount of tax payable upon an individual exiting the South African tax system under Section 9H of the Income Tax Act, which typically treats certain worldwide assets as realized at market value immediately prior to ceasing tax residency.
Interaction with Capital Gains Tax
The draft amendment focuses on donation tax; however, legal experts note that existing provisions already limit the capital gains tax exemption when transferring assets to a non-resident spouse. Section 9HB of the Income Tax Act could trigger capital gains tax implications on such transfers, meaning some transactions could potentially be subject to both capital gains tax and donation tax if the proposed amendment is adopted.
Legitimate Emigration Is Not the Goal
The Treasury did not specify that spouses must cease South African tax residency simultaneously. Different residency dates often arise for legitimate reasons, including employment, children's education, medical care, family responsibilities, or property sales. Instead, concern arises when these differing timelines are deliberately used to transfer substantial wealth to a spouse who has already become a non-resident before the second spouse emigrates for tax avoidance purposes.
What Affected Couples Should Consider
The Treasury's proposed retrospective effective date means that couples who transferred assets from February 25, 2026, onwards may be forced to review these transactions if the legislation is passed. The Bill's draft advises affected taxpayers to check residency dates, assess transfers made from the proposed effective date, consider the implications of donation tax and capital gains tax separately, retain supporting documentation and valuations, and carefully evaluate future cross-border asset transfers before the legislation is finalized. The proposed amendment is expected to have the greatest impact on high-income families with cross-border assets and differing tax residency periods. Public comments on the legislative draft remain open until August 28.
