Taxpayer benefits in donating to charity

DONATIONS made by individuals to certain public benefit organisations can result in the individuals reducing their tax liability upon submission of their annual tax return.

This potential reduction in liability is dependent on the donation being made to an SARS-approved Section 18A public benefit organisation. There is a list of all approved organisations on the SARS website. An example is the NSRI. The entity should issue the donor individual with a Section 18A certificate. This must be submitted to SARS with the individual’s annual tax return.

The following is an example of the reduction in tax liability that an individual may receive upon making such a donation:

Example A – no donation made Taxable income – R400 000 Tax liability – R93 982

Example B – donation made Taxable income – R400 000 Less donation – R30 000 (donation can- not be more than 10% of taxable income) New taxable income – R370 000 Tax liability – R84 682 In this example the individual has a double benefit:

They have donated R30 000 to a charity; and

They have reduced their tax liability by R9 300. This will be paid out as a refund by SARS upon submission of the individual’s tax return, provided the individual can produce a Section 18A certificate.

(Please note the payment of a refund will depend on each person’s overall tax situation, but the taxpayer will always receive a reduction in tax liability.)

When donating to an approved public benefit organisation, it is important to request the Section 18A certificate, as SARS will deny the donation deduction if this cannot be produced upon assessment.

Companies can also reduce their tax liability by making donations to approved public benefit organisations.

For an entity to register as a public benefit organisation and issue Section 18A certificates to their donors, there is a two-step process that needs to be followed:

The entity (either a non-profit company, trust or association of persons incorporated/established in South Africa) must apply to the SARS Taxation Exemption Unit (TEU) for registration as a public benefit organisation; and

Once the TEU has approved the entity as a public benefit organisation, the entity will then need to make another application to the TEU to be able to issue Section 18A certificates. SARS will only consider an application for the approval of a public benefit organisation if its sole or principal object is to carry on one or more of a defined list of public benefit activities and the organisation’s funds are used solely for carrying out this object (among other requirements).

The list of public benefit activities that would qualify is comprehensive and includes welfare and humanitarian, healthcare, education and development, conservation and housing-related activities.