What is Section 18A?
Section 18A of the South African Income Tax Act allows a taxpayer to claim a tax deduction for certain donations made to an organisation (generally Public Benefit Organisations – PBOs) approved by SARS for Section 18A purposes.
A Section 18A receipt is the document issued by that approved organisation when a qualifying donation is made. It serves as proof of the donation made which allows the donor an income tax deduction when submitting their annual income tax return.
Who can issue a Section 18A receipt?
Only an organisation that has been approved by SARS for Section 18A purposes can issue a Section 18A receipt.
This usually includes approved Public Benefit Organisations (PBOs), but SARS also allows certain other approved entities in specific cases. Being an NPO on its own does not automatically mean an organisation can issue a Section 18A receipt.
What donations qualify for Section 18A?
Cash donations and donations in kind can qualify for Section 18A, provided they are made to an organisation approved by SARS for Section 18A purposes and meet the relevant requirements.
Cash donations are usually the most straightforward. Donations in kind, such as goods or assets, may also qualify, but they must be properly valued. Services given for free do not qualify as Section 18A donations in the same way.
What does a Section 18A receipt look like?
A Section 18A receipt is a formal document, usually in a letter-style or certificate-style format, that records the details of a specific donation made to a Public Benefit Organisation (PBO), or another qualifying entity, approved by SARS for Section 18A purposes.
What information is required on a Section 18A receipt?
Section 18A receipts must include specific information about the donor, the donation, and the receipt itself. Following the latest SARS amendments, the required information includes:
Donor information:
- Donor name and Surname
- Donor Address
- Nature of person, such as a natural person, company, or trust
- Identification type and country of issue, in the case of a natural person
- Identification or registration number
- Trading name, if different from the registered name
- Income tax reference number
- Email address
- Contact number
Donation Information
- Date the donation was received
- Amount of the donation, if made in cash
- Nature and value of the donation, if not made in cash
- For donations in kind: An adequate and accurate description of the goods donated
- The deemed amount of the deduction, being the value of the donation for Section 18A purposes.
Receipt information:
- A unique receipt number
- The receipt must include a statement in accordance with section 18A of the Income Tax Act 58 of 1962, confirming the following:“The receipt is issued for the purposes of section 18A of the Income Tax Act 58 of 1962 (the Act). The donation received has been or will be used solely in carrying on public benefit activities listed in Part II of the Ninth Schedule of the Act.”
Organisations Details:
- Organisation’s PBO (reference) number issued by SARS
- Name and address of the approved section 18A organisation issuing the receipt
How does the Section 18A tax deduction work?
When a donor makes a qualifying donation to an organisation approved for Section 18A purposes, that donor may claim an income tax deduction provided the donation is supported by a valid Section 18A receipt.
This deduction is limited to 10% of the donors taxable income, and any amount above that limit can generally be carried forward to a later year of assessment, subject to the rules that apply.
Common Section 18A mistakes
Some of the most common Section 18A mistakes include:
- issuing receipts without the correct SARS approval.
- treating non-qualifying payments as donations.
- using incorrect donor or donation details.
- issuing receipts that do not meet the legal requirements.
Services given for free do not qualify for Section 18A. Further, discounts provided by suppliers are not regarded as a donation, and therefore Section 18A receipts cannot be issued for such discounts.NB: Only a SARS-approved section 18A organisation can issue Section 18A receipts.