Donations to non-profit entities may carry a tax benefit for the donor – the hallowed section 18A certificate. This allows the donor to claim a tax refund and encourages donations. Non-profit entities that are Public Benefit Organisations (PBO) can issue these certificates. PBO status is granted by the South African Revenue Service (SARS) under the Income Tax Act to non-profit entities for approved activities that meet the criteria. The PBO must be authorised by SARS to issue section 18A certificates for qualifying donations.
A qualifying donation is one that:
- is made to a PBO authorised to issue section 18A certificates;
- is made with a philanthropic or altruistic intent;
- confers no benefit on the donor nor anyone connected to the donor; and
- will only be used by the PBO in respect of its SARS-approved public benefit activities.
A donation that scores points under the socio-economic development element of the Codes of Good Practice on Broad-Based Black Economic Empowerment often appears similar in nature to that of a qualifying donation.
However, you cannot claim both the BEE points and a section 18A tax benefit for the same donation. A section 18A certificate requires philanthropy that carries no benefit for the donor. Claiming the BEE points for a donation contradicts this element of a donation – the BEE points benefit the donor. Claiming the BEE points extinguishes the true intent of a donation.
What are the consequences of a donor claiming a section 18A certificate and BEE points?
The PBO’s status will not be revoked immediately. The PBO will be afforded a period of time within which to take the corrective steps determined by the Commissioner of SARS. The donation will be regarded as income in the PBO’s hands and it will be taxed accordingly (bear in mind that PBOs are only partially exempt from paying income tax).
To protect itself, the PBO should include statements in all of its communications (especially to anyone getting a certificate) regarding the issue so that the donor understands that if the donation is used for BEE points, the donor will not make use of the certificate for tax purposes.
If it does, the donor will be obliged to pay the correct tax amounts due to SARS and may also be subject to penalties.