Donations made and the tax benefit you receive
Did you know, that if you donate an amount to a qualifying public benefit organisation, you can receive a beneficial tax deduction for it?
A donation made to your local public organisation, for example the Maboneng Foundation or other registered charities, allows for you to deduct the amount of your donation made, from your taxable income when determining your tax liability.
This is an effective incentive by SARS as it not only reduces your own tax liability, but it is for the benefit of an organisation which you firmly believe in and wish to support. There are however a few things you need to know before you wish to make this donation to claim your tax deduction.
Firstly, the donation must be made to a qualifying public benefit organisation. It is worth your while to ask the organisation whether or not they are registered as a public benefit organisation with SARS. Without the organisation having a valid public benefit organisation number, the donation will not qualify for a tax deduction.
Secondly, the amount deducted from your taxable income is limited to an amount of 10% of your taxable income.
Thus, if you have a taxable income of R500 000 a year, donating R500 000 to a Public Benefit Organisation is not going to reduce your taxable income to R nil. But rather, your tax deduction will be limited to 10% of your taxable income, being R50 000. Note that the remaining amount of your donation can be carried forward to the next year for a tax deduction then if it was disallowed or partly disallowed in the current year.
Thirdly, not only will you receive a tax deduction from your income tax for the donation, but you will not be subject to donations tax. Donations tax applies to a gratuitous disposal more than R100 000 per annum, by a taxpayer and is subject to 20 % donations tax (or 25% where the donation amount exceeds R30 million. )
Upon the submission of your income tax return, you will declare to SARS how much donations you made to public benefit organisations during the year of assessment, in relation to section 18 A of The Income Tax Act.
Once you have submitted your return, SARS can request your supporting documentation pertaining to the donation. You will then submit the section 18 A donation certificate which you have to obtain from the public benefit organisation, in order to qualify for the deduction.
This certificate has to contain the following:
• The reference number of the Public Benefit Organisation
• The date of the payment of the donation
• The name of the public benefit organisation
• The name and address of the donee- i.e. the person who made the donation to the public benefit organisation
• The amount of the donation made – note that the donation need not be in cash but needs to have an ascertainable monetary value
• A statement saying that the certificate is issued for the purposes of section 18A Of The Income Tax Act, 1962 and that the donation has or will be used exclusively for the object of the Public Benefit Organisation Once you have obtained the valid, qualifying certificate as above, you are eligible for the beneficial tax deduction.
So, as the festive season is nearing, perhaps you should do some research on qualifying public benefit organisations and simultaneously do some effective tax planning for the 2020 year of assessment.
Willem Oberholzer CA(SA), MCom Tax, is executive director and Jade Els MCom Tax is a tax adviser at Probity Advisory.