Donations tax and what you need to know

THE COVID-19 pandemic has left many people jobless and homeless. If you are among the fortunate, now is the time to open up your heart and your wallet.

Donations given to the Solidarity Fund and to Section 18A organisations are available for tax deduction. Below are some important facts to know about the tax implications on donations if you are thinking about giving.

What is a donation?

A donation is any gratuitous (free or at no charge) disposal of property, including any gratuitous waiver or renunciation of a right. If the person (donee) receiving the donation gives anything in return, that is not a donation.

What is donations tax?

Donations tax is payable on the total value of property disposed of, whether directly or indirectly, by a resident by means of a donation.

Who is liable for donations tax?

Donations tax applies to any person (for example: individual, company or trust) that is a resident. Hence, non-residents are not liable for donations tax.

The person making the donation (donor) is liable to pay the donations tax, however, if the donor fails to pay the tax within the payment period the donor and donee are jointly and severally liable.

Donation tax rate

Currently, donation tax is levied at a rate of 20 per cent on the aggregated value of property donated not exceeding R30-million, and at a rate of 25 per cent on the value exceeding R30-million.

What is a Sec18A organisation and will my donation qualify for deduction?

Section 18A-approved organisation means any Public Benefit Organisation (PBO) approved by the commissioner under section 18A.

Please take note that section 18A(1a) states that the approved PBO’s activities must be listed under Part II of the Ninth Schedule (‘Part II’) and that the public benefit activity must be carried on ‘in the Republic’.

Therefore, if the public benefit activities were conducted outside South Africa, no deduction is available under section 18A despite the fact that the PBO issued a certificate.

Exemptions

There are four categories of exemptions

l Category one – Certain donations are completely exempt from donation tax. For example, a donation made to a spouse, an approved public benefit organisation and any sphere of government.

l Category two – In the case of a donor who is not a natural person (for example, companies and trusts), the exemption is limited to casual gifts not exceeding R10 000 per year of assessment.

l Category three – the first R100 000 of property donated in each year of assessment by a natural person is exempt from donation tax.

The first R100 000 of property donated in each year of assessment by a natural person is exempt from donation tax.

l Category four – so much of anybona fide contribution made by the donor towards the maintenance of any person. This exemption is limited to what the commissioner considers reasonable.

How do I calculate my allowable deductions in respect of donations for the 2020/21 tax year, to the Solidarity Fund and donations made to other approved funds?

The tax-deductible limit for donations, currently ten (10) per cent of taxable income, has been increased with an additional ten (10) per cent in respect of donations in cash or of property in kind donated and actually paid or transferred to the Solidarity Fund from the period April 2020 to September 2020.

There will, thus, be a limit of 10 per cent for any qualifying donations and an additional 10 per centfor donations to the Solidarity Fund.

What happens to donations made to the Solidarity Fund in excess of the allowable deduction?

Any donations made to the Solidarity Fund, over the limit made during the 2020/ 2021 tax year will be carried forward and deemed to be a donation made in the succeeding year of assessment (2021/ 2022) and be subject to the 10 per cent limitation in that year.

What steps must I take?

THE COVID-19 pandemic has left many people jobless and homeless. If you are among the fortunate, now is the time to open up your heart and your wallet.

Donations given to the Solidarity Fund and to Section 18A organisations are available for tax deduction. Below are some important facts to know about the tax implications on donations if you are thinking about giving.

What is a donation?

A donation is any gratuitous (free or at no charge) disposal of property, including any gratuitous waiver or renunciation of a right. If the person (donee) receiving the donation gives anything in return, that is not a donation.
What is donations tax?

Donations tax is payable on the total value of property disposed of, whether directly or indirectly, by a resident by means of a donation.

Who is liable for donations tax?

Donations tax applies to any person (for example: individual, company or trust) that is a resident. Hence, non-residents are not liable for donations tax.

The person making the donation (donor) is liable to pay the donations tax, however, if the donor fails to pay the tax within the payment period the donor and donee are jointly and severally liable.

Donations tax rate

Currently, donations tax is levied at a rate of 20 per cent on the aggregated value of property donated not exceeding R30-million, and at a rate of 25 per cent on the value exceeding R30-million.

What is a Sec18A organisation and will my donation qualify for deduction?

Section 18A-approved organisation means any Public Benefit Organisation (PBO) approved by the commissioner under section 18A.

Please take note that section 18A(1a) states that the approved PBO’s activities must be listed under Part II of the Ninth Schedule (‘Part II’) and that the public benefit activity must be carried on ‘in the Republic’.

Therefore, if the public benefit activities were conducted outside South Africa, no deduction is available under section 18A despite the fact that the PBO issued a certificate.

Exemptions

There are four categories of exemptions

l Category one – Certain donations are completely exempt from donations tax. For example, a donation made to a spouse, an approved public benefit organisation and any sphere of government.

l Category two – In the case of a donor who is not a natural person (for example, companies and trusts), the exemption is limited to casual gifts not exceeding R10 000 per year of assessment.

l Category three – the first R100 000 of property donated in each year of assessment by a natural person is exempt from donations tax.

The first R100 000 of property donated in each year of assessment by a natural person is exempt from donations tax.

l Category four – so much of anybona fide contribution made by the donor towards the maintenance of any person. This exemption is limited to what the commissioner considers reasonable.

How do I calculate my allowable deductions in respect of donations for the 2020/21 tax year, to the Solidarity Fund and donations made to other approved funds?

The tax-deductible limit for donations, currently ten (10) per cent of taxable income, has been increased with an additional ten (10) per cent in respect of donations in cash or of property in kind donated and actually paid or transferred to the Solidarity Fund from the period April 2020 to September 2020.

There will, thus, be a limit of 10 per cent for any qualifying donations and an additional 10 per cent.

After making a donation, you should complete the donations tax return and submit it to your nearest SARS branch together with your proof of payment.

Donations tax payments must be made via eFiling.

When should it be paid?

Donations tax must be paid by the end of the month following the month during which the donation takes effect or such longer period as SARS may allow.

Please note that the above is for information purposes only and does not constitute tax advice. As each individual’s personal circumstances vary, we recommend they seek advice on the matter.

Please note that while every effort is made to ensure accuracy, Nexia SAB&T does not accept responsibility for any inaccuracies or errors contained herein. If you are in doubt about any information in this article or require any advice on the topical matter, please do not hesitate to contact any Nexia SAB&T office nationally.