There are very few South Africans who do not feel the need to give back to those less fortunate than themselves and many are taking steps to incorporate their charitable giving into their financial plans. Incorporating your charitable giving into your overall financial plan is advisable for a number of reasons. In this article, we explore the importance of integrating your charitable giving with your financial plan and how to maximise the impact.
Formalising your charitable giving involves deciding how and where your resources can be most impactful while at the same time ensuring that your chosen charity is aligned with your value system. Forming part of your financial plan, will allow you to track your donations, time and resources, to ensure that your continued giving is sustainable into the future without inadvertently thwarting your financial plans. If, like most South Africans, you need to budget carefully to ensure that your lifestyle is sustainable – particularly in a high-interest environment – a structured approach to supporting charities can serve to strengthen your financial position and ensure your ability to continue supporting your chosen charity into the future. It is counterintuitive to give beyond what is realistically affordable, and building your charitable pursuits into your overall planning will allow you to give confidently and consistently into the future.
Importantly, formalising your charitable giving can provide certain tax benefits if you contribute towards a Public Benefit Organisation (PBO) that has been approved by SARS. Recognising that many organisations in South Africa are dependent on the generosity of the public, Section 18A of the Income Tax Act permits taxpayers to invest up to 10% of their taxable income towards a charity on a tax-deductible basis, although it is important to know that this tax deduction is not automatic. In order to claim a tax deduction, SARS requires that a number of strict requirements are met – which include that the taxpayer is in possession of a Section 18A certificate. If the PBO qualifies in terms of Section 18A of the Income Tax Act, a donor can deduct the value of the donation from their own income tax, subject to certain ceilings.
Section 18A certificates are granted by the Tax Exemption Unit office of SARS and are only provided to specific organisations that use the donations to fund specific Public Benefit Activities. Where a registered taxpayer makes a bona fide donation of either cash or property to a Section 18A-approved organisation, he/she is entitled to the tax deduction provided that he/she submits the relevant supporting documentation as proof of the donation. In order to receive a Section 18A tax-exempt status, the PBO’s founding document needs to make it clear that its objectives are aligned with the approved public benefit activities. Bear in mind that arts and cultural organisations cannot receive Section 18A status and therefore provide no tax benefits for donors other than the donations tax exemption.
It is important to note that a bona fide donation is one that is made with ‘no strings attached’ and does not benefit the donor or any person connected with the donor. If you are donating to an approved Public Benefit Organisation, you will need to upload your Section 18A certificate when doing your e-filing and this certificate must include the PBO’s reference number, date of receipt of the donation, the name and address of the donor, and the amount or nature of the donation. To make it easier for taxpayers, SARS has published an up-to-date list of all Section 18A-approved PBOs on their website at www.sars.gov.za.
All non-profits are required to register as a Public Benefit Organisation (PBO) with SARS in order to receive a tax exemption, and this tax exemption must be approved by the SARS Tax Exemption Unit (TEU). PBOs are required to submit tax returns to prove that their funds have been used for the purposes stated by their founding document. If the PBO qualifies in terms of Section 18A of the Income Tax Act, a donor can deduct the value of the donation from their own income tax, subject to certain ceilings. Donations made to a charity that is not registered as a PBO can result in you having to pay donations tax, so be sure to do your research upfront.
As such, if you’re interested in contributing towards a public benefit organisation, it is advisable to undertake a level of due diligence by checking the PBO’s website and social media sites. Information supplied should include a list of board members and leadership staff, current and past donors, annual and financial reports, founding documents, verifiable contact details, and organisational information. Be sure to obtain proof of registration (whether they are a trust, NPO, or voluntary association), PBO certificate, and their SARS clearance. Active and above-board PBOs tend to keep their social media profiles (Twitter, Facebook, and Instagram) updated with their activities, events, and fundraising initiatives, so we encourage potential donors to spend time reviewing their social media profiles. Further, their PBO number should appear on all public documentation, websites, letterheads, and fundraising material.
Note that in order to claim a tax deduction, donors must have a receipt from the PBO they have donated to which must include the PBOs Section 18A reference number, date of receipt of donation, and the details of the donor, amongst other things.
As is evident from the benefit, there are financial planning and tax benefits to formalising your charitable pursuits, and our advice is to speak to an independent advisor who can help in maximising your input and tax savings.
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