Charitable giving has always been a core consideration for many wealthy South Africans, who often donate during their lifetime to non-profit organisations (NPOs) and/or make specific bequests in their wills to NPOs. Before you donate to a cause that is close to your heart, however, it’s a good idea to take note of the different kinds of non-profit entities recognised in South Africa, and the tax consequences of donating to them.
NPOs in South Africa are governed by the Non-Profit Organisations Act (NPO Act). According to the Act, an NPO is defined as either a trust, company or other association of people established to serve a public purpose – essentially, those in need.
The South African Revenue Service encourages NPOs to register as public benefit organisations (PBOs) in terms of Section 30 of the Income Tax Act (ITA) and, where required, to apply for the relevant tax exemptions afforded in terms of Section 18A of the ITA. Donations made to registered PBOs that comply with Section 18A of the ITA can be claimed as tax deductions up to certain limits.
Registered PBOs are exempt from income tax, but certain receipts and accruals from trading or activities carried out by a PBO may be taxable. Donations and bequests made to registered PBOs are also not subject to donations tax and/or estate duty. Similarly, assets donated or bequeathed to registered PBOs aren’t subject to capital gains tax.
ESTABLISHING A PBO
The types of PBO available in South Africa include:
Non-profit companies – governed by the Companies Act. A non-profit company enjoys all the benefits of a juristic personality, which may include the protection of directors from personal liability. Shareholders won’t receive any form of dividends. A disadvantage of setting up this form of PBO is that it’s administratively intensive, which may attract higher costs.
Non-profit trusts – governed by the Trust Property Control Act. The most significant advantage of a non-profit trust is its flexible structure – it can be used for a variety of purposes. It can only apply for tax benefits if it complies with the relevant requirements of the ITA. Another benefit of a non-profit trust is that its formation requirements and ongoing obligations are less onerous than those of a non-profit company, and it may be less costly to run. A disadvantage is that a non-profit trust doesn’t have a separate legal personality. Trustees may therefore be protected from personal liability only to a limited extent.
To qualify for approval as a PBO, an organisation has to undertake and support particular public benefit activities, including welfare and humanitarian, healthcare, land and housing, education and development, religion, belief and philosophy, cultural, conservation, environment and animal welfare, research, and sport activities.
INCOME TAX RELIEF
Any individual – whether during their lifetime or in their last will and testament at date of death – or company making a bona fide donation to a registered PBO can qualify for a tax deduction, provided the PBO is able to issue a Section 18A certificate to the donor. A bona fide donation is a voluntary, gratuitous gift given out of generosity, without reciprocal obligations or personal benefit for the donor, who may also not impose conditions that could enable them to derive some direct or indirect benefit from the donation.
The deductible portion of the donation is capped at 10% of the taxable income of the donor. With donor companies, an excess donation may be rolled over as a deductible donation in the subsequent year of tax assessment.
At Sanlam Private Wealth, we can assist you with creating a non-profit company or a non-profit trust, as well as drafting your will containing bequests to a registered PBO of your choice. For further information, contact Kajal Chowthee on +27 (0)31 560 3666 or firstname.lastname@example.org.
we can assist you with
The formation and registration of trusts, and the provision of independent trusteeships – both local and oﬀshore.
The creation of BEE, charitable, special and Shariah trusts compliant with regulatory and legislative requirements.
The administration of deceased estates in South Africa and abroad.
Advice on complex structures, asset restructuring and bequests in foreign jurisdictions.
Advice on emigration and immigration, foreign earnings and the application of any double taxation agreements.
Updating trust deeds to ensure they’re in line with the latest changes in the trust environment.
Updating and/or drafting of wills dealing with South African and/or foreign assets.
Advice on the establishment and management of charitable organisations, their tax status and tax deductible donations.
Advice on the potential tax consequences and reporting obligations if you hold a US passport or green card, or if you have children living in the US.
Guidance on the financial implications of life-changing events, such as getting married, divorce or the birth of a child.
Sanlam Private Wealth (Pty) Ltd, registration number 2000/023234/07, is a licensed Financial Services Provider (FSP 37473), a registered Credit Provider (NCRCP1867) and a member of the Johannesburg Stock Exchange (‘SPW’).
All reasonable steps have been taken to ensure that the information on this website is accurate. The information does not constitute financial advice as contemplated in terms of FAIS. Professional financial advice should always be sought before making an investment decision.
Participation in Sanlam Private Wealth Portfolios is a medium to long-term investment. The value of portfolios is subject to fluctuation and past performance is not a guide to future performance. Calculations are based on a lump sum investment with gross income reinvested on the ex-dividend date. The net of fee calculation assumes a 1.15% annual management charge and total trading costs of 1% (both inclusive of VAT) on the actual portfolio turnover. Actual investment performance will differ based on the fees applicable, the actual investment date and the date of reinvestment of income. A schedule of fees and maximum commissions is available upon request.
COLLECTIVE INVESTMENT SCHEMES
The Sanlam Group is a full member of the Association for Savings and Investment SA. Collective investment schemes are generally medium to long-term investments. Past performance is not a guide to future performance, and the value of investments / units / unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available on request from the manager, Sanlam Collective Investments (RF) Pty Ltd, a registered and approved manager in collective investment schemes in securities (‘Manager’).
Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. The manager does not provide any guarantee either with respect to the capital or the return of a portfolio. Collective investments are calculated on a net asset value basis, which is the total market value of all assets in a portfolio including any income accruals and less any deductible expenses such as audit fees, brokerage and service fees. Actual investment performance of a portfolio and an investor will differ depending on the initial fees applicable, the actual investment date, date of reinvestment of income and dividend withholding tax. Forward pricing is used.
The performance of portfolios depend on the underlying assets and variable market factors. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-dividend date. Portfolios may invest in other unit trusts which levy their own fees and may result is a higher fee structure for Sanlam Private Wealth’s portfolios.
All portfolio options presented are approved collective investment schemes in terms of Collective Investment Schemes Control Act, No. 45 of 2002. Funds may from time to time invest in foreign countries and may have risks regarding liquidity, the repatriation of funds, political and macroeconomic situations, foreign exchange, tax, settlement, and the availability of information. The manager may close any portfolio to new investors in order to ensure efficient management according to applicable mandates.
The management of portfolios may be outsourced to financial services providers authorised in terms of FAIS.
TREATING CUSTOMERS FAIRLY (TCF)
As a business, Sanlam Private Wealth is committed to the principles of TCF, practicing a specific business philosophy that is based on client-centricity and treating customers fairly. Clients can be confident that TCF is central to what Sanlam Private Wealth does and can be reassured that Sanlam Private Wealth has a holistic wealth management product offering that is tailored to clients’ needs, and service that is of a professional standard.