Phoenix Auditing

Section 18A of income tax act Significance of PBO Status

What is a Section 18a certificate?

Section 18A in essence allows a taxpayer, who has made a bona fide donation to a PBO or certain other institutions, to claim a tax deduction subject to a limit. … The section 18A certificate may only be issued in respect of donations received in cash or kind (other than services).

​How does an organisation apply for section 18A approval?

 A formal application must be submitted for consideration. An application form EI 1, which is available on the SARS website, must be completed

To register as a PBO, organisations need to submit the following documents to the Tax Exemption Unit of SARS.

  1. certified copy of the organisation’s founding document.
  2. A completed application form to register a PBO (Form EI 1)

How to get a certificate of tax exemption?

It is completed by organizations that that are a tax exempt non-profit or charitable organization. This form is presented by the organization to prove their tax-exempt status. To receive a tax exempt certificate, an organization must first complete the appropriate forms and have them approved by the IRS.

How the Act Works?

donations were only deductible where a taxpayer made a donation to an educational body that could issue a tax certificate in accordance with section 18A of the Income Tax Act. In reviewing the rules relating to tax exempt bodies in South Africa, Government made the decision that the deduction of donations for tax purposes should be broadened to some degree.

In terms of section 18A, a deduction is allowed in respect of the sum of bona fide donations in cash or kind made by a taxpayer, during the year of assessment,are

  • Institution, board or body contemplated in section 10(1)); 
  • Public benefit organisation approved by the Commissioner under section 30;
  • The Government or any provincial administration or local authority as contemplated in section 10(1)(a) or (b) to be used for purposes of any activity contemplated in Part II of the Ninth Schedule;

Which carries on any public benefit activity in the Republic and which complies with the requirements of subsection (1C) or any additional requirements prescribed by the Minister.

As it does not exceed 5% of the taxable income of the taxpayer before the deduction under this section and section 18.

This section makes a claim for a deduction subject to the submission of a receipt as prescribed and also provides for the valuation of any donation of property.

The public benefit activities which the Minister has approved for section 18A deduction purposes are set out in Part II of the 9th Schedule to the Income Tax Act

sample of Incentives to Donors

  • An individual with an annual taxable income of R280 000 can donate a maximum of R14 000 to a S18A organisation and claim this donation as a deduction on his personal income tax return.
  • This translates to an effective out-of-pocket expense of R8 480 or 60% of the amount donated.
  • A company with an annual taxable income of R1000 000 can donate a maximum of R50 000 to a S18A organisation and claim this donation as a deduction on the company’s corporate tax return. 
  • This translates to an effective out-of-pocket expense of R35 000 or 70% of the amount donated.  

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