While it is very rare to come across a private donor who is motivated to give solely by the tax benefits of doing so, not all donors appear to be taking advantage of these. In our busy lives, claiming tax benefits may seem too complex or too much of a hassle but it is indeed likely that, if you knew how much you could save, you might give even more.
Tax can often boggle the mind and the purpose of this piece is to set out in what is hopefully an accessible format, the various tax advantages of giving for private individuals.
Donations tax
First, generally speaking, individuals can make up to R100 000 in donations each tax year without paying donations tax. Any donations exceeding this will attract donations tax at 20% of the value of those donations. There are exceptions to this and one of those is when an individual donates to a charitable type of organisation that has been specially approved by SARS as what is known as a Public Benefit Organisation (PBO).
Example
If you donate R1 million to an organisation without this approval you could be liable for up to R180 000 in donations tax as only the first R100 000 is tax free. If you donate the same amount to a PBO there would be no donations tax payable.
Section 18A deduction
Over and above this, if the organisation that you are donating to has what is known as Section 18A approval then the donation you are making could be tax-deductible to a limited extent, meaning that the donation could even reduce your annual tax liability.
Most organisations enjoy this approval these days and can therefore pass on the benefits to their donors. Organisations that don’t qualify are likely to be those that carry on religious activities or those involved in sport, arts or culture.
Although the Section 18A deduction available to donors is limited to 10% of the value of their taxable income in the relevant year, at the time of going to print there were changes proposed to allow donors to roll over the value of their donations exceeding this to subsequent years. In essence, you will be able to claim more of a deduction in respect of donations that exceed the limit, albeit over a longer time period.
Example
Your annual taxable income is R3 million and you make donations of up to R50 000 in the same tax year to organisations that have Section 18A approval. Your taxable income would be reduced to R2 950 000 as a start and you would have your other tax deductions available to you over and above this. Currently your Section 18A deduction would be limited to a maximum of R300 000 in this example and so if you had donated R350 000, you would not be able to claim the full amount as a deduction. If the proposed changes are implemented, you would be able to carry over the excess R50 000 deduction to be used at a later stage.
Steps to take:
1. Check the approvals and registrations of the organisations that you are donating to and ask for their PBO numbers and confirmation of their Section 18A approval if applicable.
2. Record these donations in your tax return.
Estate duty
While it appears that very few donors make provision for giving in terms of their Wills, this form of giving can provide significant relief from estate duty. The value of any bequest or legacy to an approved PBO will be deducted when the dutiable value of an individual’s estate is calculated after death.
Example
If you bequeath R250 000 to an approved PBO, the value of your estate on which estate duty would be payable (at 20%) would be reduced by this amount. Steps to take: 1 Check the PBO status and PBO registration number of the organisation that you are looking to benefit. 2 Ensure that the advisers drafting your Will properly describe the organisation and, ideally, they should record its PBO registration number.
Steps to take:
1. Check the PBO status and PBO registration number of the organisation that you are looking to benefit.
2. Ensure that the advisers drafting your Will properly describe the organisation and, ideally, they should record its PBO registration number.
Setting up a charitable trust
For the longer-term donor who would like to set up a charitable trust during his or her lifetime, not only would there be a number of the already mentioned tax benefits available as a result, but there should also be no tax payable within the trust, meaning that income and gains generated can be used for further giving.
Example
You decide to set up a charitable trust as you would like to be involved during your lifetime and you would like to involve your children so that they can take over the running of the trust after your death. You set up the trust with an initial donation of R2 million and aim to add further amounts over time. The R2 million donation would be free of donations tax and would qualify for a limited tax deduction (if Section 18A approval is indeed obtained). Further amounts donated should enjoy the same benefits. Once the funds are in the trust and invested, any income earned or capital gains made should be tax-free.
Step to take:
Ensure that the trust is properly structured so that it qualifies for and receives PBO status and possibly Section 18A approval. These benefits are there for use by all donors and are intended to motivate people to give. They are quite straightforward and certainly worth claiming, especially if it means being able to give even more.
By The Philanthropy Office at Nedbank Private Wealth
* This article gives a summary of the tax benefits of giving in very general terms; there are exceptions that apply. You should take specific advice before acting on this information to confirm its application in your particular circumstances.
Source details: Nedbank Private Wealth Giving Report II
