Written by Max Azer
Whether for philosophical purposes or tax deductions, have you ever asked yourself if you could be the donor or the donee (receiver of a donation) of the infamous S18A Certificates? This article will shed light on what these certificates mean for donors and donees and what requirements must be met to qualify for tax deductions.
Generally, a donation is regarded as being something of value, for example, cash or property. A donation is freely and unconditionally given away. A donation is required to be given by the donor out of free will or pure generosity. Subsequently, it is accepted that a donation must not be subject to any conditions, nor may the donor receive any consideration in return for his liberal gesture of giving freely. A common example of a donation includes amounts paid to a charity in aid of cancer awareness.
Public benefit organisations, commonly referred to as PBOs, are non-profit organisations whose business activities fall solely within the parameters as set out in Ninth Schedule to the Income Tax Act, 58 of 1962. These business activities include humanitarian, healthcare, educational, conservational, environmental, and animal welfare causes as well as land and housing. The final decision to determine if a company falls within the scope of the Ninth Schedule’s public benefit activities remains with SARS. A registered PBO qualifies for tax exemption of receipts and accruals from the public benefit activities. Other trade activities may still be subject to tax at the standard rates for companies or trusts.
S18A certificates can only be issued by SARS-approved PBOs (the donee) and are issued in accordance with the provisions set out in the Section 18A of the Income Tax Act. Specific details need to be furnished on a valid S18A Certificate, for example, the reference number issued to the PBO by SARS, the date of receipt of donation, the name and address, etc.
The donor, on the other hand, could enjoy a tax benefit by donating to a SARS-approved PBO.
Section 18A allows a taxpayer, who donates and consequently receives a S18A Certificate, to deduct the said donation from his taxable income. The amount to be deducted is subject to a limitation on the amount which the donor may deduct. The allowable deduction may not exceed 10% of the taxable income. This is taxable income before retirement contributions and Section 6quat adjustments. This limitation does not apply to a taxpayer that has a portfolio of a collective investment scheme (unit trusts).
In respect of auctions, the example to understand whether a S18A Certificate may be issued for an auction is as follows: if a pen worth R5.00 is on auction (a PBO being the auctioneer), then the donor would only be entitled to claim a S18A Certificate for the amount he paid above the value of R5.00, as this will be the portion that is regarded as being freely or gratuitously donated.
If you have any questions regarding registering a PBO or are considering donating to an approved PBO organisation, you are welcome to send an email to email@example.com.
Please note that these articles are to be considered general information sheets only and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information therein. Always contact one of your Finleys advisors for specific and detailed advice. Errors and omissions excepted (E&OE).