In our third article in this GivenGain Blog series, we share some common examples of donations for which a Section 18A receipt should not be issued.
Which donations do not qualify?
Donors are often surprised to find that their gift of time, effort or skill to an organisation with Section 18A approval doesn’t qualify under Section 18A. (These often take the form of free or discounted services, including free rental of premises.)
Nor do items donated for fundraising purposes (such as charity auctions, or any amount paid for an item at a charity auction).
Donations of time, effort or skill do not qualify for tax deductibility under Section 18A. Nor do items donated for fundraising purposes.
In addition, donations towards certain public benefit activities, including the following, do not qualify for tax deductibility:
- The promotion of any religion, belief or philosophy
- The advancement, promotion and preservation of arts, culture or customs (including museums, monuments, libraries, and galleries)
- The provision of youth leadership and development programmes
- Research and consumer rights
- The administration, development, coordination and promotion of sport or recreation in which participants take part on a non-professional basis, as a pastime.
A donation made for the sole purpose of carrying out any of these activities does not qualify for a Section 18A receipt, even if the public benefit organisation (PBO) has Section 18A approval. Therefore a donor who wants togain tax benefits from his/her donation must clarify how that donation will be used, even if the organisation is itself Section 18A-approved.
A Section 18A receipt also cannot be issued if there is any form of reciprocal benefit to the donor. Such a ‘donation’ is not bona fide (made in good faith).
When is a donation not bona fide?
A donation is described in the SARS Basic Guide to Tax-Deductible Donations (Issue 2) as “a gratuitous disposal by the donor out of liberality or generosity, under which the donee is enriched and the donor impoverished. It is a voluntary gift which is freely given to the donee. There must be no quid pro quo, no reciprocal obligations and no personal benefit for the donor. If the donee gives any consideration in exchange it is not a donation.”
Companies often receive reciprocal obligations and/or tangible benefits in exchange for ‘donations’ to PBOs, which fall outside the scope of the Section 18A tax deduction and goes beyond the ‘feel-good’ element of giving. Examples include profiling and marketing (e.g. signage and media coverage), or team-building for the donor’s staff.
If the donor receives any of these or any other benefits as a result of a donation, that ’donation’ would be disqualified from Section 18A benefits.
In our final blog in the series, we will talk about the implications of non-compliance with Section 18A.
In this series of blogs, Cathy Masters highlights instances of abuse or misunderstanding of Section 18A of the South African Income Tax Act. Cathy is the founder of CMDS, a financial management consultancy to the non-profit sector for 30 years. To ask any questions about income tax exemption and Section 18A approval and receipts, please contact CMDS through its website at www.cmds.org.za.