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Art 18A Tax Benefit for donations / Belastingvoordeel vir skenkings

To claim your Art 18A contributions as a tax deduction is as easy as 1,2,3!

On SARS efiling:

  1. When you open your ITR12 return, you have to complete the “form wizard” so that the tax return form can be customized for your unique claims.
  2. Under “Standard Questions”: on the right hand side, mark Yes (Y) for “Do you want to claim donations meade to approved organisations in terms of s18A?
  3. When your tax return has been created, look under: Taxpayer InformationDeductions

 – there will be a page for Donations allowable in terms of s18A to approved organizations.

here you complete the amount, and click on Donation Details and complete the fields.

Section 18A – donations/free services

Making donations to organisations that have Section 18A approval allows donors a level of tax deductibility. However, not all donations qualify for this deductibility and we are often asked by our clients for clarity on the numerous different examples that crop up in practice. Whilst this is by no means a comprehensive guide on the issue, we hope that this article will help you to answer donors’ queries and will provide some clarity on whether a Section 18A receipt can be issued or not.

 

Section 18A approval

 

If an organisation has been approved by SARS in terms of Section 18A of the Income Tax Act[1], donors making donations to that organisation may be entitled to a tax deduction in respect of their donation. Section 18A approval clearly makes it attractive for donors to fund organisations that enjoy this status; whether or not an organisation would qualify for this approval will depend on the activities that it carries out – activities that qualify are those that Government has prioritised for now.

 

Donors who are South African taxpayers will, broadly speaking, be entitled to deduct the total value of their donations to 18A approved organisations in any tax year, up to a limit of 10% of their taxable income for that tax year[2].

 

Receipts

 

Organisations with Section 18A approval need to issue receipts (that comply with the section in the Act) to their donors. Sometimes it is very clear that a receipt can be issued in respect of a donation (for example – a straight cash donation) but things get a little less clear when the donation is in a form other than cash. Where the “donation” would not qualify for a deduction, a receipt should not be issued by the organisation.

 

What qualifies for the Section 18A deduction?

 

The answer to this is not always clear and it is perhaps easier to start with instances where SARS will not allow any deduction for a particular donation and thus where a receipt should not be issued by the organisation. Some examples include:

  • an amount paid for attending a fundraising function
  • memorabilia donated for auction to raise funds
  • an amount paid by a successful bidder at a fundraising auction
  • an amount paid for a lottery or raffle ticket
  • an amount paid for school fees, entrance fees for school admittance or compulsory school levies
  • the value of free rent, water and electricity provided by a lessor
  • payment of debts due by the organisation, for example, where the donor settles a debt or an account on behalf of the organisation
  • donation of private company shares (probably because there are so many ways to value these)
  • donation of a fiduciary right, usufruct or other similar right or an intangible asset or financial instrument (other than that mentioned below)

 

Donations in kind should, however, qualify for deduction and the deemed amount for the purposes of determining the deduction is set out, by type of property, in sub-section 18A (3) of the Act. These would include:

  • trading stock, for example, a computer hardware company donating computers, a pharmaceutical company donating medicine or a furniture store donating furniture
  • an asset used by the donor in conducting his/her/its trade, for example, a business not involved in the computer industry donating some of its computers or office equipment
  • general assets, for example, a private donor donating his or her personal computer  or used furniture
  • assets purchased, manufactured, erected, installed or constructed by or on behalf of the donor, for example, a private donor going out and buying computers to be donated to a school, or paying for the erection of security fencing at a children’s home
  • listed shares or a financial instrument issued by a “financial institution”

 

The donation of services (such as time, skill or effort) at no charge will, unfortunately, not qualify for a tax deduction. Examples would include the auditor not charging for the cost of the audit or the plumber waiving the cost of the plumbing services[3].

 

Conclusion

 

Donations and contributions by funders and other supporters can take so many different forms. If you are at all unsure whether a donation is tax deductible so far as the donor is concerned, we suggest that you approach the Tax Exemption Unit at SARS for guidance[4].

 

By Anna Vayanos

BoE Private Clients’ Philanthropy Office – a division dedicated to providing specialised fiduciary and investment services to NPOs and donors.

 

This article is provided for information purposes only and specific advice should be sought before taking any action based on this information.

 

 

1 58 of 1962

2 It is not as straightforward as this. More detail is set out in Section 18A.

3 SARS does not deem this to be the donation of “property”.

4 A large part of this information and the examples are from the Tax Exemption Guide for Public Benefit Organisations in South African

issued by SARS.

[1] 58 of 1962

[2] It is not as straightforward as this. More detail is set out in Section 18A.

[3] SARS does not deem this to be the donation of “property”.

 

[4] A large part of this information and the examples are from the Tax Exemption Guide for Public Benefit Organisations in South African issued by SARS.

*With Acknowledgements and thanks to CMDS and BoE Private Clients