The South African government has recognized that certain organizations are dependent on the generosity of the public. To encourage this generosity, a tax deduction is provided for specific donations made by taxpayers.
The eligibility is restricted to organizations approved by the Commissioner that use the donations to carry on or fund specific Public Benefit Activities (PBAs) in South Africa. Eligible entities include Public Benefit Organizations (PBOs), institutions, boards or bodies, conduit PBOs, and government entities.
Application Process for Section 18A Approval
A qualifying organization not yet approved by the Commissioner for purposes of Section 18A must complete the prescribed application form EI 1. Information on the application process is available on the SARS website. Approval under Section 18A can be sought simultaneously when applying for approval as a PBO under Section 30 or as an institution, board, or body under Section 10(1)(cA)(i) using the EI 1 application form.
A separate selection is, however, made on the application form to indicate to the Commissioner that approval under Section 18A is being sought.
If a PBO or an institution, board, or body already approved under Section 30 or Section 10(1)(cA)(i) wishes to apply for Section 18A approval subsequently, it may do so by a written request to the Commissioner.
Significance of the Date of Approval
The date of approval under Section 18A is significant because the Act does not allow Section 18A approval to be granted retrospectively. Section 18A receipts may, therefore, only be issued for bona fide donations received on or after the date of the letter issued by the Commissioner confirming approval for purposes of Section 18A.
Understanding the Ninth Schedule: Part I and Part II
The Ninth Schedule is divided into two parts:
- Part I: Lists a number of PBAs for purposes of approval as a PBO under Section 30.
- Part II: Lists the PBAs approved by the Minister for purposes of Section 18A. Note that not all PBAs listed in Part I are included in Part II. Section 18A approval is granted only for PBAs listed in Part II.
Categories of Public Benefit Activities (PBAs)
The PBAs listed in Part II are categorized as follows:
- Welfare and Humanitarian.
- Health Care.
- Education and Development.
- Conservation, Environment, and Animal Welfare.
- Land and Housing.
Depending on the PBAs carried on, a Section 18A-approved organization (except for agencies, programs, funds, High Commissioner offices, or similar entities) has an obligation to obtain, retain, or submit an audit certificate to the Commissioner for record-keeping purposes.
Types of Donations: Cash vs. Non-Cash
- Cash Donations
A cash donation is a gift of money given to a nonprofit organization, charity, or cause. It is a voluntary contribution made by an individual, business, or organization to support a specific purpose or mission. Cash donations may include:
- Payments by electronic fund transfer (EFT).
- Credit or debit card payments.
- Postal orders.
Forms of Cash Donations:
- One-time gifts.
- Recurring donations (e.g., monthly or annually).
- Grants.
- Bequests (gifts made through a will or estate).
Exclusions: The following are not considered cash donations:
- Donations of goods or services (e.g., food, clothing, equipment, labor).
- In-kind donations (e.g., materials, supplies, expertise).
- Donated time or volunteer hours.
- Gifts in kind (e.g., art, collectibles, property).
- Donations to individuals (e.g., crowdfunding for personal expenses).
- Loans or loan guarantees.
- Investments or equity contributions.
- Sponsorships.
- Non-Cash Donations (Property in Kind)
A donation in kind, also known as a non-cash donation or gift in kind, is a contribution of goods, services, or property other than cash. A Section 18A receipt may only be issued for an eligible donation that is solely and exclusively used for PBAs in Part II within South Africa.
Details Required on a Section 18A Receipt
A Section 18A receipt will be valid only if it contains the following details:
- Reference number issued to the Section 18A-approved organization by the Commissioner.
- Date the donation is received.
- Name and address of the Section 18A-approved organization issuing the receipt.
- Name and address of the donor.
- Amount of the donation (if in cash).
- Nature and value of the donation (if not in cash).
From 1 March 2023, the following additional information must be included on a Section 18A Tax Receipt:
- Type of Donor (natural person, company, trust, etc.).
- Donor Identification Type and Country of Issue (in case of a natural person).
- Identification or Registration Number of the donor.
- Tax Reference Number of the donor (if available).
- Contact Number of the donor.
- Email Address of the donor.
- A Unique Receipt Number.
- Trading Name of the donor (if different from the registered name).
Claiming Tax Deductions for Donations
A taxpayer, which can be an individual, trust, or company, donating in cash or property in kind is entitled to a deduction in determining that taxpayer’s taxable income, provided the donation is actually paid or transferred during the year of assessment to the Section 18A-approved organization. A taxpayer may donate directly to a Section 18A-approved organization or through a payroll-giving program operated by an employer.
For all other taxpayers, the allowable deduction may not exceed 10% of the taxable income (excluding any retirement fund lump sum benefit, retirement fund lump sum withdrawal benefit, and severance benefit) of the taxpayer as calculated before allowing any deduction for donations under Section 18A or a deduction for foreign taxes under Section 6quat(1C).
Excess Donations and Carrying Forward
Any excess amount of a donation made that exceeds the amount of the deduction allowable for a year of assessment may be carried forward for purposes of Section 18A. The excess amount carried forward will be deemed a donation actually paid or transferred in the next succeeding year of assessment, subject to the 10% limitation. If any excess remains, it can be further rolled over but always subject to the 10% limitation.
