Caty Naude The Gift That Gives Back Tax Benefits of Charitable Donations 6Dec2024

The Gift That Gives Back: Tax Benefits of Charitable Donations

 

Caty Naude CFP®

 

At this time of year, with the festive season upon us, many of us get into the giving spirit. It's a wonderful opportunity to support meaningful causes, and, as a bonus, you can also enjoy some tax benefits!

 

What is Section 18A?

Section 18A of the Income Tax Act provides a tax deduction for donations to specific public benefit organisations (PBOs). This deduction reduces the donor's taxable income, thereby lowering their tax liability. However, not all donations to non-profit organisations (NPOs) qualify for this deduction. The key is that the recipient organisation must be approved by the South African Revenue Service (SARS) as a Section 18A-approved entity.

 

Criteria for Section 18A Approval

For an organisation to be approved under Section 18A, it must meet specific requirements determied by SARS. These include:

  • Public Benefit Activities: The organisation must conduct activities that are listed as public benefit activities (PBAs) in Part II of the Ninth Schedule of the Income Tax Act. These activities typically include welfare, health care, education, and conservation efforts.

  • Approval by SARS: The organisation must apply to SARS for approval. This involves demonstrating that its activities align with the PBAs and that it meets other regulatory requirements.

  • Issuance of Section 18A Receipts: Once approved, the organisation can issue Section 18A receipts to donors. These receipts play a crucial role in the tax process, as they enable donors to claim their tax deductions.

 

Common misconceptions

  1. Not all donations are tax-deductible: Only donations to organisations approved under Section 18A qualify for tax deductions. Donations to other organizations are not considered.

  2. You can't deduct the full donation amount: You can only deduct up to 10% of your taxable income before the donation deduction.

  3. Not every organisation can issue Section 18A receipts: Only organisations approved by the South African Revenue Service (SARS) can give you these receipts, which you need to claim the deduction.

  4. Donations in kind are always deductible: Donations in kind are non-cash donations, like goods or services. They can be deductible, but they must be valued correctly and meet SARS requirements.

  5. Section 18A approval is not permanent: Approval can be taken away if the organisation doesn't follow SARS rules. They must keep complying to stay approved.

 

Conclusion

By ensuring donations are made to SARS-approved organisations, you can support meaningful causes while also enjoying the financial advantages of tax deductions. This festive season, let your generosity benefit both your heart and your wallet!

 

Read more about Ascor® Tax Services

Ascor®Independent Wealth Managers Tax Services page

 

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