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Looking to secure a tax deduction through donations - this is how to get it right

Jan 8, 2019
Looking to secure a tax deduction through donations - this is how to get it right

People/organisations may decide to donate to charity for several reasons. An added benefit of making donations to certain charities is that you may be entitled to a tax deduction, provided that several strict requirements are met.

The misconception that donations made to charities are automatically tax deductible in relation to the donor is commonplace.

This article seeks to educate donors (as well as potential donors) on how to go about successfully securing a tax deduction in terms of section 18A of the Income Tax Act (the Act).

From the outset, it is important to note that not all donations made to charities are tax deductible. To claim a tax deduction, donors need to be in possession of a valid section 18A certificate. Only organisations who are approved as a Public Benefit Organisation (PBO) by SARS in terms of section 18A of the Act are entitled to issue donors with section 18A certificates for a bona fide donation made.

Tax deductible donations

A bona fide donation is a donation made with “no strings attached” and cannot be of any direct or indirect benefit to the donor (or any “connected person” to the donor). PBO’s that are approved in terms of section 18A of the Act are put through a rigorous registration process by the Tax Exemption Unit at SARS and need to carry out one or more public benefit activities mentioned in Part II of the 9th Schedule to the Act (amongst a number of other requirements).

Importantly, for a section18A certificate to be valid, it must contain the following information:

  • The reference number of the organisation issued to it by the Commissioner for purposes of section 18A;
  • The date of the receipt of the donation; 
  • The name and address of the organisation issuing the receipt to which enquiries may be directed; 
  • The name and address of the donor; 
  • The amount or nature of the donation if not in cash; 
  • Certification that the receipt is issued for the purpose of section 18A and that the donation will be used exclusively for the activities which are approved for section 18A purposes; and
  • The receipt must be issued in the year when the donation is received by the organisation approved for purposes of section 18A.,

Not all PBO’s registered with SARS are approved in terms of section 18A of the Act. Before making a donation to a PBO or organisation who claims to be approved by SARS in terms of section18A of the Act, it is important that donors check whether the organisation is in fact duly registered in this regard.

SARS have made this process very simple for donors, by publishing an up-to-date list of all section 18A approved PBO’s. To access this list, simply log onto the SARS home page (www.sars.gov.za) and search for Approved Section18A PBO's” the search function.

Input the name of the charity you wish to donate to – if the charity appears on this list, you can be reassured that, on receipt of your donation, the charity will in fact be entitled to issue you with a valid section 18A certificate for you to claim your tax deduction.

Charitable donations tax deduction limit

It is important to note that tax-deductible donations are limited to 10% of your taxable income (excluding any retirement fund lump sum benefits). For example, if your taxable income for the 2019 year of assessment amounts to R100,000, the tax deduction would be limited to R10,000.

Any amount donated in excess of 10% of your taxable income will be carried over to the next year of assessment and thus will not be lost. On completing their annual income tax return, a donor claiming a section 18A tax deduction will be required to input the following information contained on each section 18A certificate:

  • the amount donated to each donee; and
  • the relevant approved PBO reference number of each donee.

It is important that donors upload the section 18A certificates to SARS via eFiling should SARS select the income tax return for review/audit verification. Furthermore, taxpayers are required to keep section 18A certificates (along with all other tax related information relevant to their income tax returns) for a period of not less than 5 years from the date of the assessment.

In addition to this, a further benefit of making donations to approved PBO’s is that these donations are exempt from donations tax as well as capital gains tax (in relation to assets donated), ensuring that the beneficiaries of the donation enjoy the full benefit of the donations, and that the donors are not subject to any adverse tax implications subsequent to making the donations.

By making sure that you are in receipt of a valid section 18A certificate issued by an organisation approved in terms of section 18A and claiming the deduction correctly on your income tax return will help prevent any unwanted surprises on assessment.

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