Source: SARS.GOV.ZA
A Section 18A tax deductible receipt is an official document issued by a Section 18A-approved institution to a donor who makes a qualifying donation. It serves as evidence of the donation made and potentially enables the donor to claim a tax deduction from their taxable income on submission of the income tax return.
To issue section 18A tax-deductible receipts, the section 18A-approved institution must be approved by the South African Revenue Service (SARS) for purposes of section 18A of the Income Tax Act. The donation made by the donor, which includes an individual or business, may be in cash or in-kind and must not have any conditions attached for personal benefit.
For donors, obtaining a section 18A tax-deductible receipt potentially enables them to reduce their taxable income. This incentivises charitable giving and encourages greater support for worthy causes. For section 18A-approved institutions, issuing section 18A tax deductible receipts can enhance transparency, build trust with donors, and promote their fundraising efforts.
Different Types Of Section 18A Donations
Cash Donations:
Cash donations are the most common type of Section 18A donations. These include monetary contributions made by individuals or businesses directly to registered PBOs. The PBO issues a Section 18A tax-deductible receipt for the donated amount, which the donor can use to claim a tax deduction on their income tax return.
In-Kind Donations:
In-kind donations refer to non-cash contributions, such as goods or assets, provided to a registered PBO. These can include food, clothing and equipment offered to support the organization’s charitable activities. When properly valued and verified, in-kind donations can qualify for Section 18A tax deductions, and the PBO issues a receipt for the estimated value of the donated items.
Payroll Giving:
Payroll giving, also known as workplace giving or employee giving, allows employees to contribute to PBOs through regular deductions from their salaries. The employer deducts the specified amount from the employee’s salary and donates it to the chosen PBO on their behalf. If the PBO is eligible to issue Section 18A tax-deductible receipts, employees can claim tax deductions for their contributions. The section 18A-approved institution issues the section 18A tax deductible receipt to the employer and the employer must take these donations into account when determining the monthly employees’ tax to be deducted from the employee’s remuneration.
Non-Qualifying Donations
× Donation of services rendered such as a professional person renders a skill free of charge.
× An amount paid for attending a fundraising dinner, dance, or charity golf day.
× The amount paid for the successful bid of goods auctioned to raise funds by an institution and Memorabilia, paintings, etc., donated to be auctioned to raise funds.
× Amounts paid for raffle or lottery tickets.
× Amounts paid for school fees, entrance fees for school admittance, or compulsory school levies.
× Value of free rent, water, and electricity provided by a lessor to the lessee which is an approved PBO.
× Payments in respect of debt due.
Filling: Income Tax Return (IT 12EI)
- All PBOs and exempt institutions must submit annual income tax returns (IT12EI), notwithstanding the exemption which may result in no tax liability.
- No incomplete (blank) entries are accepted.
o If the institution has had no income for the year, a declaration must be made on the return by answering “Y” to the question “Is the institution dormant?” and selecting an appropriate to the question “Does the institution have any assets and/or reserves?”.
Note that a declaration made on the return is legally binding and SARS may audit the institution (including all information declared).
Date for submission:
o Companies & Association of Persons – as per their Financial Year end (FYE) date
o Trusts – as per SARS filing season deadline.
What You Need To Know As a Taxpayer Making Or Claiming A S18A Donation (Donor)
- Ensure that you are making a donation to an institution approved for Section 18A purposes (SARS publishes a list of approved S18A entities).
- When you make a donation in cash or kind to a S18A approved institution the taxpayer is entitled to a deduction from taxable income if the donation:
o Does not exceed ten percent of the taxable income of the taxpayer, calculated before allowing any deductions – (a roll-over provision provides for additional amounts to be claimed in subsequent financial years); and - Donations must be supported by the necessary receipt issued by the institution (which needs to meet certain legal requirements prescribed).
o Receipts that do not meet the legal requirements will be disallowed in the hands of taxpayers claiming it.
o Receipts supporting claims submitted must be made available upon request by SARS during verification or audit processes.
Provide all your information to the institution when making a donation if you intend to claim a tax deduction.
Anonymous donations cannot be claimed without a valid tax-deductible receipt.
S18A Reporting obligations
From 01 March 2023:
• Issue a receipt that meets all the requirements for a valid receipt (additional requirements from 1 March 2023).
• Submit an Annual Income Tax Return and disclose S18A information (including the number and value of all S18A receipts issued).
• Make available upon request a list of all S18A receipts issued.
• Participate in section 18A third-party reporting [IT3(d)] pilot as early adopters (voluntary).
From 01 May 2024
•Issue a receipt that meets all the requirements for a valid receipt (including additional requirements).
•Submit information on all S18A receipts issued at regular intervals as indicated on the SARS website in a prescribed format using the IT3(d) on:
• eFiling
• HTTPS
• Connect DirectConsequences of Non-Compliance with S18A Requirements
Donor Recipient – S18A Approved Entity
- Donation may be deemed to be taxable income in the hands of the section 18A approved entity if it: o Failed to ensure that section 18A funds were applied to objects of the entity or applied such funds for purposes not covered by such objects.
o Issued or allowed a receipt to be issued in respect of fees or emoluments payable to that entity.
o Ring-fenced section 18A approvals – applied section 18A funds on part I activities.
o Conduit PBOs providing funds for both part I and II PBAs – provided section 18A funds to entities conducting part I activities.
o Ring-fenced section 18A approvals and Conduit PBOs providing funds for both part I and II PBAs failed to obtain and retain an audit certificate as required.
o Any section 18A-approved department of government – failed to obtain and retain an audit certificate as required.
• Continued non-compliance may lead to S18A and tax-exempt status being revoked by SARS
Donor – Claiming Invalid S18A Receipt
- Donations will be disallowed.
- Appropriate enforcement action – such as understatement penalties.