All the donations that qualify for tax deductions in South Africa

 ·23 Jun 2024

The South African Revenue Service (SARS) allows tax deduction on money donated to registered and approved organisations in terms of section 18A of the Income Tax Act (ITA).

There are stringent requirements attached to these types of tax deductions, and consultancy PwC has also outlined exactly what types of donations actually qualify.

Currently, deductions in respect of donations to certain public benefit organisations are limited to 10% of taxable income, excluding retirement fund lump sums and severance benefits.

Any amount of donations exceeding 10% of taxable income is treated as a donation to qualifying public benefit organisations in the following tax year.

According to PwC, for purposes of the tax deduction, section 18A-approved organisations include:

  • Any South African registered nonprofit company, trust or association of persons that has been approved by SARS as a public benefit organisation;
  • Any institution, body or board established by law that has been approved by SARS for purposes of the act;
  • Any agency that meets the definition of “specialised agencies” or international organisation or United Nations programme or fund specifically listed in the Act
  • Any department of government of the Republic of South Africa in the national, provincial or local sphere that has been approved by SARS

Only donations in the form of cash or property in kind are eligible for tax deduction in terms of section 18A.

Cash or monetary donations are straight-forward and may include payments by electronic fund transfer (EFT), credit or debit card, or postal order.

A donation of property in kind is slightly more complex as it encompasses a donation made in a form other than cash.

However, PwC said it is important to note that this does not include a donation of a service (e.g., a person’s time, skill or effort applied at no consideration to the organisation).

The types of donations that do qualify as ‘property in kind’ are quite varied, and include:

Donation TypeExamplesDeemed Value
Immovable PropertyA building, etc.Per the prescribed formula in the Act, which takes into account the cost of the immovable property being donated and 60% (natural person) or 20% of any capital gain (if any) that would have been determined had the immovable property been disposed of for an amount equal to the lower of market value or municipal value on the day the donation was made.
A qualifying financial instrument which is trading stock of the taxpayerShares in a company, etcThe lower of the fair market value of that financial instrument on the date of that donation or the amount which has been taken into account for the purposes of section 22(8)(C) of the ITA.
Other trading stock forming part of the business or trade conducted by the taxpayerLivestock or produce donated by a farmer, and goods like computers, foodstuffs, furniture, medical supplies, and motor vehicles, etc.The amount which has been taken into account for the purposes of section 22(8)(C) of the ITA or, in the case of livestock or produce, the said paragraph 11 of the First Schedule to the ITA in relation to the donation.
An asset used by the taxpayer in conducting the taxpayer’s trade but that is not trading stock.Cash registers, computers, crockery, delivery vehicles, furniture, garden equipment, kitchen utensils and office equipment, etc.The lower of the fair market value of the property on the date of the donation; or the cost to the taxpayer of such property less any allowance (other than any investment allowance) allowed to be deducted from the income of the taxpayer under the provisions of the ITA in respect of that asset.
An asset that is not trading stock and is not used in the business of the taxpayerPersonal assets or assets bought by the taxpayer, such as computers, furniture, sport equipment and vehicles, etc.The lower of the fair market value of the property on the date of the donation; or the cost to the taxpayer of such property less, in the case of a movable asset which has deteriorated in condition by reason of use or other causes, a depreciation allowance calculated in the manner contemplated in section 8(5)(bB)(i) of the ITA.
Property purchased, manufactured, erected, installed or constructed by or on behalf of the taxpayerCarpets or cupboards installed, and security fencing and buildings such as classrooms erected by or on behalf of the taxpayer, etc.The lower of the fair market value of the property on the date of the donation; or the cost to the taxpayer of such property.

PwC said that SARS will only allow a tax deduction in terms of section 18A if the deduction is supported by a valid section 18A receipt or certificate issued in terms of section 18A(2) (a) of the Act.

This section prescribes the mandatory information that must appear on a section 18A receipt and was updated in MArch 2023 to include more information about donors.

The consultancy said that if taxpayers want to ensure that the finalisation of their tax return is not held back by SARS’ approval processes, they should have their donation affairs in order.

This includes confirming and where appropriate keeping record and documentary proof of the 18A status of the organisations they donate to, making sure the donations are going to the designated applications, getting the necessary declarations and getting receipts.

“Failure to do so could result in the deduction being disallowed and, accordingly, the risk of possible understatement penalties being levied by SARS upon assessment of the taxpayer’s annual income tax return,” PwC said.

Read: How to pay less tax in South Africa – legally

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