In the February 2026 Budget Review, National Treasury indicated that tax amendments will follow to limit the donations tax exemption rules where a spouse ceases to be a tax resident. With the tabling of the Taxation Laws Amendment Bill, this is now a reality.
The amendment followed after Treasury identified a potential tax avoidance arrangement involving transfers between spouses that could avoid donations tax and reduce the capital gains tax (CGT) consequences arising under Section 9H of the Income Tax Act when an individual ceases to be a South African tax resident.
From February’s Proposal to the October Legislative Position
The arrangement identified by Treasury involves spouses deliberately staggering the cessation of their South African tax residency. One spouse first becomes a non-resident, after which the remaining resident spouse transfers substantial assets to them, in order to benefit from the donations tax exemption before subsequently ceasing South African tax residency.
Under Section 56(1)(a) and (b) of the Income Tax Act, qualifying donations between spouses may be exempt from donations tax. This allows assets to be transferred without an immediate donations tax liability under the existing rules, potentially reducing the assets remaining in the transferring spouse’s hands when Section 9H applies, lowering the tax liability on assets when exit tax is triggered.
The proposal to address this arrangement provides for the amendment to take effect from 25 February 2026, applying to donations made on or after that date.
Understanding the Donations Tax Exemption
Donations tax may arise when assets are transferred without adequate consideration. Section 56 provides an exemption for qualifying donations between spouses, but the proposed restriction would limit its availability where the recipient spouse is a non-resident.
Consequently, donations to a non-resident spouse may become subject to donations tax under the ordinary rules, unless another exemption or relief applies. The capital gains tax consequences of the transfer must also be assessed separately.
Understanding Sections 9H and 9HB
Although Sections 9H and 9HB may both be relevant to transfers between spouses around the time of cessation of tax residency, they address different tax consequences.
Section 9H: The Exit Tax
Section 9H generally triggers a deemed disposal of certain assets at market value immediately before an individual ceases to be a South African tax resident. This may result in CGT, commonly known as the exit tax. However, certain assets, including South African immovable property, are generally excluded from this deemed disposal. The resulting liability depends on the assets held, their market values, their base costs and any applicable exclusions or relief.
Section 9HB: Rollover Treatment for Assets Transferred Between Spouses
Section 9HB provides rollover treatment for qualifying transfers of assets between spouses. Where the relevant requirements are met, the transfer generally takes place on a tax-deferred basis, with the receiving spouse inheriting the relevant tax attributes of the asset, including its original base cost and acquisition date.
However, rollover relief is subject to specific statutory requirements and exclusions. In particular, proposed section 9HB(6) restricts the application of rollover relief where the receiving spouse is not a South African tax resident, subject to specified exceptions. Accordingly, a transfer to a non-resident spouse should not automatically be assumed to qualify for rollover treatment.
This interaction between sections 9H and 9HB is important when evaluating the tax planning arrangements identified by National Treasury. Although transferring assets before ceasing South African tax residency may affect the assets subject to the transferring spouse’s subsequent section 9H deemed disposal, the transfer itself may trigger capital gains tax or other tax consequences if rollover relief under section 9HB is unavailable.
The donations tax exemption, the capital gains tax consequences of the asset transfer and any subsequent exit tax implications must therefore be assessed separately. The overall tax outcome will depend on the nature of the assets, the residency status of both spouses, the timing of the transactions and the applicable statutory provisions.
What Do the October Developments Mean for Expatriates?
The February proposal identified the government’s intention to address the use of the inter-spousal donations tax exemption in arrangements involving staggered cessation of tax residency. The October legislative developments have advanced that position.
For expatriates considering cross-border transfers between spouses, the recipient’s residency status and the availability of donations tax exemptions and CGT rollover relief are important considerations. A transfer that appears tax-free under one provision may still trigger tax under another.
Treasury’s proposed approach signals a stronger focus on scrutinising cross-border transfers between spouses to ensure that they are legitimate and not structured primarily to circumvent South African tax obligations. Transparency, appropriate tax planning and compliance with the applicable legislation will remain essential to safeguarding the South African tax base.
Individuals considering leaving South Africa should consult a cross-border tax specialist before initiating cessation to ensure that the timing, planned asset transfers and associated tax implications are properly assessed.
