Beware of charity scams
Many organisations and private individuals are looking for ways to make a difference in the wake of the Knysna and Plettenberg Bay fire disaster. Giving money to a charity is an easy and extremely helpful way of supporting communities and causes in need.
An individual can donate an amount up to a R100 000 a year, free of donations tax, and a company up to R10 000. In terms of section 59 of the Income Tax Act, the donor is liable for payment of donations tax, calculated at 20% of the fair market value of the property donated, within three months after the donation was made. If the donor fails to pay the tax timeously, the donor and the donee will be jointly and severally liable for the payment thereof.
One of the exemptions in terms of section 56 of the Income Tax Act is donations to certain public benefit organisations (PBO).
IS THE CHARITY YOU ARE SUPPORTING LEGITIMATE?
Charity scams try to take advantage of your generosity and kindness and involve a scam artist or scammer, who collects money by pretending to represent a real charity.
No one wants to see their gift fall into the hands of a poorly run, or even fraudulent set-up. You must therefore research the organisations you would like to support before you end up handing over your hard-earned cash to a scam.
Go to www.CharitySA.co.za, where you will find a listing of South African NPOs. You can also call the Department of Social Development for more information. There is also a list of approved section 18A PBOs on the SARS website which prospective donors can check: www.sars.gov.za/ ClientSegments/Businesses/ TEO/Pages/Approved-Section18APBO’s.aspx.
Never provide a credit card or bank account number over the phone and never respond to email solicitations unless you know the organisation.
WHAT DO YOU NEED TO KNOW?
The statutory provisions regulating fundraising are found in the Non-Profit Organisations Act, No. 71 of 1997, which provides for controlling measures on the collection of contributions from the public and for the establishment of various relief funds.
All fundraiser organisations that fall under the Non-profit Organisations Act (NPO Act) must register as an NPO with the NPO directorate in the national Department of Social Development (DSD). All registered NPOs are issued with a certificate of registration that reflects the name of the organisation, date of registration and registration number.
The primary objective of an NPO is to benefit the community they serve. The income and property of NPOs are non-distributable as it is an organisation without share capital.
In order for an NPO to register for tax exemption they have to register as a PBO in terms of section 30 of the Income Tax Act.
The tax exemption unit (TEU) is responsible for reviewing and approving applications to register an entity as a PBO, whose activities may not promote the self-interest of any of its employees or persons acting in a fiduciary capacity. However, members and office bearers may receive reasonable remuneration for services rendered on behalf of the NPO. A further requirement is that the entity must be one of the following:
● A trust established in the RSA.
● An association of persons formed or established in RSA (also known as a voluntary association).
● A branch established in RSA by a foreign organisation that is exempt from income tax in terms of the Tax Act.
● An NPO incorporated in RSA (also known as a section 21 company).
WHAT ARE THE MAIN TAX BENEFITS FOR NPOS?
An NPO will be fully exempted from paying income tax if it carries on no or limited trading activities. An NPO that is also an approved PBO can issue receipts to their donors, which will allow the donors to make deductions from their taxable income.
NPOs that have been granted PBO status by SARS gain access to other tax benefits, which include exemptions from transfer duty, estate duty, capital gains tax, donations tax, the skills development levy and dividends tax. In addition, bequests made to such NPOs in a deceased’s will are deductible for estate duty purposes in the hands of the estate.
WHAT BENEFITS ARE THERE IN GIVING?
Not only will donating to a charity provide you with a feeling of empowerment, it is also a taxdeductible contribution. It must be noted that the donation can either be in cash or kind, but not in the form of a service.
An approved PBO will issue the donor with a section 18A certificate (a receipt) for any donations they receive. This certificate allows the donor (individual or company) to claim the value of that donation from their taxable income up to the value of 10% of their taxable income.
There is an additional concession applicable as from March 2014, where any donations in excess of the 10 % limit will be rolled over and carried forward to the succeeding year of assessment. It will thus be deemed a donation actually paid or transferred during the succeeding year. This rollover treatment will therefore not be permanently lost as a tax deduction and will continue to apply in respect of any future excesses.
Donors can claim the tax deduction from SARS when submitting their tax returns by attaching the section 18A receipt received from the PBO.
Your donation can also reduce your monthly employees’ tax (PAYE) if your employer agrees to process your donation through its payroll. Essentially, any qualifying donation made, limited to 5% of your salary (subject to certain allowable deductions), can be deducted from your salary before PAYE is calculated.
Contact our offices to assist you in the following:
Reporting or investigating your suspicions relating to unscrupulous charity scams to Corruption Watch, the SAPS or to the Consumer Complaints, Consumer and Corporate Regulation Division at the Department of Trade and Industry in Pretoria.
Registering a fundraising entity and drafting its founding documents.