The South African Revenue Service (SARS) offers a beneficial tax incentive under Section 18A of the Income Tax Act, encouraging individuals and corporations to support educational institutions through donations. This provision not only aids in the advancement of education but also allows donors to claim significant tax rebates, beyond what regular fees and government subsidies can cover. Danielle Luwes, Tax Director at Hobbs Sinclair Advisory provides clarity on the process and benefits of Section 18A donations.
Understanding Section 18A donations:
Section 18A donations are a strategic way to support eligible schools and Public Benefit Organisations (PBOs) while receiving a tax deduction. It’s crucial to ensure the institution is approved by SARS as a Section 18A entity.
Donations are deductible from taxable income, capped at 10% of the taxpayer’s income before other deductions. This means that if a taxpayer’s income before deductions is R1,000,000, they can claim up to R100,000 as a deduction for their donation. Excess amounts beyond this 10% cap can be carried forward to subsequent years, offering flexibility for larger donations.
Eligibility and impact of donations:
When making a donation, obtaining a Section 18A tax certificate from the school is essential for claiming the deduction. Luwes emphasises the positive impact of these donations. “Contributions under Section 18A greatly assist in enhancing educational facilities and opportunities, beyond what regular fees can cover. It’s a meaningful way to support education and receive tax benefits,” she adds.
Ensuring compliance:
Luwes advises donors to be vigilant and well-informed. “It’s crucial for both donors and schools to understand the legal distinctions and comply with SARS regulations. Engaging with a tax professional for guidance is always advisable,” she recommends.
Luwes furthermore provides crucial insights into the nuances of this tax provision. “There’s a common misconception regarding Section 18A; it’s often misunderstood that regular school fees qualify as donations for tax benefits. However, it is important to differentiate these fees from eligible donations under Section 18A. Misclassifying school fees as donations can result in penalties from SARS,” explains Luwes.
The provision to claim tax benefits while supporting education underlines a key element of South Africa’s tax policy. It not only incentivises philanthropic contributions towards educational development but also reflects the country’s commitment to fostering a culture of community support and social responsibility.
