A few weeks ago I did some articles on donations and donations tax. A
reader has now asked me to cover the tax deductibility of donations.
Firstly, realise you can only make a deduction for a donation you have
made against your taxable income if you have a tax certificate from a
qualifying institution. You may deduct a donation you have made to a
qualifying institution, subject to limits, determined thus:
* As a natural person you would need to calculate your taxable income
before making any deduction for which you may qualify in respect of
medical expenses. You may then deduct the amount of your donations up to
R500 or two percent of that amount, whichever is the greater; and
* If a company, close corporation, trust or other entity has made
qualifying donations, it may deduct up to five percent of its taxable
income. Clearly, if the entity has made a loss for the year, it may not
deduct any amount for the donations it has made.
So what is a qualifying institution, that is, what donations can you
deduct? Basically, you may donate to any university, college or approved
educational fund, and provided the purpose of your donation is not to pay
for students` fees or to grant a bursary to any person you have nominated,
the university, college or educational fund will be entitled to provide
you with a tax certificate, indicating you qualify for the deduction.
Without the certificate/receipt you will not be allowed to make the
deduction.
The receipt will reflect the date and amount of the donation, the name of
the donee, your name and address, and a statement that the donation
qualifies for deduction under section 18A of the Income Tax Act.
Universities and colleges are recognised, but an "educational fund" might
not be so easily identified. The legislation defines it as:
* The National Study Loan and Bursary Fund; or
* Any special fund established for the sole purpose of receiving donations
to be used exclusively for educational and training purposes, in the
Republic of South Africa. The fund must relate to the education of persons
who are post standard six level; or
* Any fund which has been approved by the Minister of Finance (for
university or college education); or
* Any trust established for the purpose of receiving donations from
companies to be used for educational and training purposes in respect of
primary or secondary education, if donors have committed themselves to
donating a minimum of R1 million to the fund.
It is clear that the qualifying institutions are only educational
institutions. This may or may not change in the future depending on the
government`s reactions to recommendations made by the Katz Commission.