Giving back pays rich dividends

MAKE IT EASY TO GIVE CSI makes a lot of sense when seen from a taxation point of view – contributions can be added to your list of tax deductions, reducing your bill. TAX BREAKS

Over the past few weeks I have spoken at length on the importance of corporate social investment and moreover the necessity of small businesses to devise CSI initiatives of their own. Last week in particular I mentioned the benefit of CSI tax incentives as a way to give back. Subsequently, some of our readers asked how giving back can benefit a business through tax. The answer to that question lies in charitable tax deductions. Charitable tax deductions are refunds the receiver of revenue (Sars) gives when you donate money or items equivalent to money, such as goods and services, or even immovable property to assist people who are less fortunate. These deductions arose from government’s desire to recognise and reward those businesses that contribute to society in any way they can. And at the same time, it is a method to incentivise those who do not have it in them to give back unless they have something to gain.

So, how do you get your charitable tax deduction? The first thing you have to understand is that charitable tax deductions only apply to approved public benefit organisations and certain qualifying institutions. Therefore, you need to first establish if the beneficiary of your donation is approved and can issue a receipt that allows you to claim from Sars.

Secondly, a tax deduction does not entail Sars physically refunding you money, but rather it entitles you to a deduction of up to 10% of your taxable income. For example, if you have to pay Sars R1 million in taxes, but donated R60 000 to charity, you can deduct that R60 000 from the million and only pay Sars R940 000.

But, if you donated R140 000, you are only permitted to deduct up to 10% of the value of your taxable income. That means you would only be able to deduct R100 000 from the R1 million and you would pay Sars R900 000 in tax.

So, what happens to the remaining R40 000 from the R140 000 you donated? Well, it rolls over to the next financial year. Isn’t giving great? That means you can claim the R40 000 the following year when you submit your tax return.

Finally, what if you donate in the form of goods or services? Well, the monetary value of your effort must first be determined and then the same tax-deductible process followed. In the case of immovable property, the monetary value must not exceed the lower end of the market or municipal value.

There are other finer details you should know which you can find on the Sars website, www.sars.gov.za