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How to donate money - and get some back

Monday, 17 October 2011   (0 Comments)
Posted by: SAIT Technical
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How to donate money - and get some back

TaxTalk - by Matthew Lester

A cocktail of great leadership from Archbishop Emeritus Desmond Tutu, Warren Buffett, Pravin Gordhan and Jacko Maree has created a mood of: "How can I help solve South Africa's problems today? And if I could secure a tax deduction on a donation, I might donate even more!" So here are some rules to help.

Tax deductible donations can only be made to institutions recognised in terms of Section 18(a) of the Income Tax Act. Not all charities qualify!

There has also been a lot of tax mischief with tax-deductible donations. So check it out before committing your millions - and make sure you keep the Section 18(a) receipt.

Donations with "strings attached" don't qualify for tax deductions. Similarly, advertising sponsorships mixed with philanthropic motives can also run into trouble. Charity and advertising don't mix when it comes to tax.

"Salary sacrificing" donations - "don't pay me, rather pay my specified charity" - can land taxpayers in trouble. When it comes to earnings it is difficult to disturb the principle that the earner pays the tax.
Donations of assets, as opposed to cash, don't automatically qualify for full tax deductions. The principle of lower cost and market value applies. So an artwork bought in 1960 for R10000, and worth R10-million today, will only qualify for a tax deduction of R10000.

Revocable donations do not qualify for tax deductions. So those who want to control the destiny of their philanthropy could lose their tax deductions.

The value of the tax deduction depends on your taxable income. Taxpayers earning more than R580000 a year effectively get 40% tax relief. Taxpayers earning below the tax threshold, which stands at R59250 for taxpayers younger than 65 years of age, get no tax relief because they don't pay tax. Corporate donations get 28% tax relief and trusts 40%.

Tax-deductible donations are limited to 10% of taxable income.

If the section 18(a) donation receipt is presented to the taxpayer's employer, immediate tax relief is available through the employee's tax/PAYE system. But this is limited to 5% of taxable income from that employer. The remainder must be claimed as a tax deduction on submission of the tax return. And that can easily delay the effect of the deduction by up to a year.

Donations to all tax-exempt institutions are exempt from both capital gains tax and donations tax, even if they do not qualify for income tax.

Bequests from deceased estates are exempt from both capital gains tax and estate duty.
Finally, be careful when trying that old trick of trading tax-deductible donations for school fees. SARS can so easily attack. And the practice can even jeopardise the Sector 18(a) status of the school for bona fide donors.



Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.

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