Since it is the time of year when you may be feeling more than usually generous, you may be delighted to hear that, within limits, the taxman has some standing provisions to encourage you to give away money.
Tax concessions are available under two types of tax legislation: donations tax and income tax.
According to Michael Rudnicki, a tax manager at accountants Price Waterhouse, under donations tax law you can donate up to R25 000 a year to anyone without paying donations tax. If you donate more than R25 000, the excess will be taxed at a rate of 25 percent, except in certain cases, when no donations tax applies. The donations tax exemption on the first R25 000 applies to anyone except a company.
Just in case you thought the 25 percent tax on amounts in excess of R25 000 sounded generous, remember that it is money you have already paid income tax on and if you spent it on yourself you would only pay 14 percent VAT, but with no exemption, of course.
The exceptions cases in which you will not pay any donations tax include any donations between husbands and wives.
Donations to or by religious, educational or charitable organisations are also exempt from donations tax if the Minister of Finance is satisfied that these organisations are serving the interests of the public. To obtain an exemption from donations tax, an institution should seek a written ruling from the Commissioner for Inland Revenue.
Donations of property outside South Africa, except under certain circumstances, are also exempt.
The recipient would not be liable for income tax on the donation received as the receipt of donations is generally regarded as being of a capital nature and not subject to income tax.
So, for example, you can donate R30 000 to your husband without incurring any donations tax. But if you donate R30 000 to your grandmother, you will pay donations tax at 25 percent on R5 000 of that amount.
Under the Income Tax Act, you can only claim a tax deduction for bona fide donations to any university or college, except if it is to pay students' fees. You can also claim a tax deduction on donations to educational funds. University, college and educational funds are defined in the Act and you should seek professional advice before you claim an income tax deduction.
You will also need the recipient's Section 18A certificate in order to claim a deduction for these donations.
This deduction can be claimed by anyone except companies at two percent of taxable income before the donation, or R500, whichever is greater.
The wisest way to approach a substantial donation, if you are looking for income tax relief and relief from being liable for donations tax, would be to contact the organisation to which you plan to make a donation and find out whether it has been given Section 18A status by the Commissioner for Inland Revenue and a declaration that donations to it will be exempt from donations tax.