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Provided by the South African National Department of Health
THE TAX IMPACT OF
CHARITABLE GIVING
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.
The types of PBO available in South Africa include:
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.
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 at kajalc@privatewealth.sanlam.co.za.
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.
Expert advice is crucial in dealing with cross-border estate and tax planning.
Stanley Broun has spent 13 years in Fiduciary And Tax.
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