In this Bulletin:

• Did you know donations are tax deductable?
• 3 steps to deduct your charitable donation...
• Example
• Remember to issue receipts... and follow these 5 rules

Dear Reader,

Most churches and other welfare organisations usually have to rely on public donations to pay their bills. Now, with the economic crisis and its impact, donors’ pockets are even emptier. Everybody’s looking for ways to save on their personal budgets and one of the first items they’ll cut out are charitable contributions to churches or related organisations.

Did you know donations are tax deductable?

One such organisation recently approached me and, in analysing their activities, I realised that they could define a number of their projects as Section 18(A) activities, i.e. these activities involve donations taxpayers make. The donor can actually deduct these donations from the donor’s taxable income.

3 steps to deduct your charitable donation…

My recommendation to the organisation (and to you) is this…

Step #1: If you’re involved, directly or indirectly, in any Public Benefit Organisation (PBO), take a closer look at which of its projects fall within the Section 18(A) activities.

Step #2: Approach SARS to register these activities. The good news is that it’s not a complex process at all.

Step #3: Once you’ve received SARS’ approval, the registration will make a dramatic difference to the organisation’s donations and increase the willingness of individuals and companies to contribute.

Example
A church is currently involved in a project which qualifies as a Section 18(A) activity. It’s currently funded by donations including tithes and offerings paid individuals pay with their “after tax” money. For every R1 they donate, the donor must earn up to R1.67 before tax. In other words, for every R1 the donor contributes to the church he’ll receive a maximum tax benefit of 40 cents. So, if the donor wants to donate R1 of his “after tax” money, he can increase his donation to R1.67, if he’s paying the 40% tax rate. Alternatively the donor may donate the R1 and receive a tax benefit from SARS in claiming the donation.  

Remember to issue receipts… and follow these 5 rules

1. To qualify for a deduction of the donation, the PBO must issue a receipt for such donation
2. This receipt must contain the words “issued in terms of Section 18A of the Income Tax Act”
3. You must retain a duplicate of each receipt
4. The receipt must also clearly indicate the date upon which you made the donation. If the donor made a series of donations to one particular public benefit organisation during the year, then it may issue a single receipt covering all those donations. In this case, the receipt must indicate the tax year during which the donations were received, or be dated the last day of February.
5. The receipt must be issued in the name of the taxpayer. SARS won’t accept blank receipts.

It’s important to remember that the deduction from SARS is limited to 10% of a donor taxable income. Isn’t it interesting that this agrees with certain religious organisations’ biblical advice?

It’s now your turn to act and advise your church or favorite charity to ensure SARS also makes a cash contribution through you, to pass on the cash tax savings.

Until next time,

Prof Marius Maritz

Editor in Chief, Practical Tax Handbook