If you have received a donation or have made a donation during the 2020/2021 tax year, there may be tax implications and there are many factors to consider. This article highlights the A to Z on donations.
Donations made and received
- A reminder – donations are permissible as follows:
- A donation, to be deemed as a “bona fide donation” for tax purposes, must be seen as a “gratuitous” disposal of property – in other words:
- must be given for free or at no charge;
- the donee (i.e. the person receiving the donation) must not be expected to give anything in return;
- it must not be confused with a “gift” – this could become relevant if the donor is in debt with SARS for example which could then give rise to an investigation;
- a donation can be in the form of cash, an asset (e.g. a car, a piece of furniture, a painting).
- A donation, to be deemed as a “bona fide donation” for tax purposes, must be seen as a “gratuitous” disposal of property – in other words:
- Once it’s determined that a bona fide donation has been made – the tax implications have to be considered – they are:
- is donations tax payable?
- is the donation tax-deductible?
Exemptions
- Donations tax does not apply to:
- Non-residents – i.e. a donation from a long lost relative living overseas is exempt from donations tax.
- Residents– there are certain donations that are “exempt” from donations tax i.e.:
- Donations between spouses;
- Donations to any sphere of government;
- donations to any political party (i.e. duly recognised/constituted);
- donations to approved Public Benefit Organisations (i.e. PBO’s).
- Further “exemptions” from donations tax include:
- where the value of the donation in a tax year does not exceed:
- R 100 000 of property donated by a natural person;
- R 10 000 of casual gifts (in the case where the taxpayer is not a natural person – e.g. a company or a trust).
- Contributions made towards the maintenance of any person:
- not linked to any specific amount;
- must be seen by the Commissioner as “reasonable”;
- intended to cover supporting a child for example.
- where the value of the donation in a tax year does not exceed:
Non-“gratuitous” Donations
Examples of donations that are not seen as “gratuitous” in nature:
- payment of school fees – even if the school is registered as a section 18(A) entity;
- tithes and offerings to churches;
- a once-off payment to secure a contract:
- this payment is not seen as a donation – therefore donations tax does not feature in this type of transaction;
- it is therefore seen as taxable income and therefore must be declared as taxable income;
Important Note on section 23(o) of the Act:
- Prohibits the deductibility of expenditure from (which includes donations):
- corrupt activities;
- illegal activities;
- bribes;
- fines & penalties.
Declaring Donations
A note about declaring paying / receiving a donation:
- as at February 2018 (and months prior) – there is a flat rate of 20%;
- after February 2018:
- there is a flat rate of 20% but up to a cumulative value of R 30 million in a tax year;
- a rate of 25% is levied on the portion of the donation that is above R 30 million;
- Determining the R 30 million threshold:
- the aggregate value of property donated commences for example from 1 March 2018 to the date within 2018 when the donation/s ceased;
- any donation/s made prior to March 2018 must not be taken into account;
- the aggregate value to get to the R 30 million must include deducting the various exemptions as per (s56) e.g.:
- donations from a foreign trust;
- residency status at the time of receipt of donation;
- Important – get some advice on this – it does get complicated!
A note about declaring paying / receiving a donation:
- The Act allows for any taxpayer to deduct from taxable income:
- up to 10% of taxable income;
- any amount above this is deemed to be a donation to be made the following year of assessment (i.e. it’s carried over);
- the donation must have been made to an entity, organisation, agency, institution or department of government listed in section 18(A) of the Act.
Tax changes regarding donations to the Solidarity Fund during 2020
Tax changes regarding donations to the Solidarity Fund during 2020 were made to facilitate those taxpayers who wanted to contribute towards this initiative during the COVID-19 period:
- a specific IRP5 code (4055) was created to store these contributions;
- a concession was made to enable employees to “fast track” the total donation (i.e. a three month and a 6 month period was allowed);
- Employees need to declare any donations they received from the fund as it is seen as taxable income!!
Donations made via the Payroll
Monthly donations made by employee/s – via a Payroll Deduction:
- The employer must be satisfied that the contribution/donation is being made to a bona fide section 18(A) registered entity – proof of this would be required to be supplied by the employee;
- The amount deducted from the employee/s would be paid over to the entity in the same manner as any other third party payment made by the employer on a monthly basis;
- Employers would not ordinarily do this (it can be an admin headache!) unless there are sufficient employees participating in the scheme to warrant the effort – these schemes are commonly known as “Payroll Giving” schemes;
- In a Payroll Giving scheme:
- the amount deducted from the employee is a pre-tax deduction;
- a maximum of 5% of the employees’ remuneration is allowed;
- code 4030 on the IRP5 is used to store the total donation – i.e. not just the 5%;
- this code is also used to store any donation made to a COVID-19 Disaster Relief Organisation;
- the amount deducted from the employee is not seen as part of the R 100 000 p/a maximum that one can donate;
- it is seen as part of the maximum of the 10% p/a of taxable earnings that one can contribute to such an entity;
- employees are encouraged to check their records re these donations – if they have contributed more than 5% and have received the tax benefit, they will be faced with a tax liability on assessment.
