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Downes Murray International News

Amendments to Section 18A of the Income Tax Act

The South African Revenue Services (SARS) appear to have made a number of changes to the law with regard to the issuing of Tax-Deductible receipts for registered Public Benefit Organisations (PBO). 

These changes have not been actively communicated to stakeholders and have appeared in various places on the internet, or organisations become aware of them when they apply for un updated PBO Letter from SARS. The importance of firstly acquiring and then retaining Section 18A status cannot be over emphasized.

The first way that an organisation may not comply with the SARS requirements and could lose their Section 18A status relates to the clauses in their constitution. Eleven specific clauses are required in your constitution and experience with SARS has shown that it is best if these clauses appear in the organisations’ constitution verbatim.

Once an organisation’s constitution has been amended and approved at the organisation’s Annual General Meeting or Special General Meeting, whichever your organisation’s constitution permits, the amended and approved document needs to be submitted to SARS for approval, within 12 months of the amendment. This can be e-mailed to SARS at teu@sars.gov.za

Section 18A Certifiactes

The Act is now very specific as to what MUST appear on a Section 18A Tax-Deductible receipt and the items are:

  • Your Public Benefit Organisation number in the ( 13_ _ _ _ _ _ _) format and not the old 18/11/13 _ _ _ format;
  • The date the donation is received;
  • The recipient organisation’s name and address;
  • The name and address of the donor;
  • The amount or nature of the donation ;
  • Certification that the receipt is issued for the purpose of Section 18A and that the donation will be used exclusively for the activities which are approved for Section 18A purposes,
  • And the receipt must be issued in the year when the donation is received by the organisation approved for purposes of Section 18A.
Additional Reporting

SARS in addition require additional reporting on Section 18A receipts, previously an organisation was required to submit an annual Income Tax Return (IT12EI) by the due date.

 The IT12EI must be requested, it is not sent out automatically by SARS. The easiest way to do this is by registering online at www.sarsefiling.co.za to access, request and submit the IT12EI electronically, or:

  • By calling the SARS Contact Centre on 0800 00 SARS (7277) or
  • By requesting an IT12EI by contacting the TEU on teu@sars.gov.za or calling (012) 483 1700 or
  • Lastly by visiting your local SARS branch.

There are however now some additional SARS requirements to retain your Section 18A status and they are that organisations are required to submit what is referred to as a statement and supporting documentation. There is some debate as to the need to have these documents prepared by your auditor or independent accounting officer. What we do know however, is that they must contain:

  • The full particulars of all the receipts issued in respect of deductible donations, in other words a list of all the Section 18A receipts issued,
  • and how these funds were spent.
Bona Fide Donations

SARS provides strict guidelines as to what tax-deductible receipts may be issued for and the terms they use are that they can only be issued for bona fide donations, as listed in Annexure A. Annexure A provides details on What is considered a bona fide donation for S18A purposes? And I quote:

  • “A bona fide donation is a voluntary, gratuitous gift disposed of by the donor out of liberality or generosity, where the donee is enriched and the donor impoverished.”
  • “There may be no quid pro quo, no reciprocal obligations and no personal benefit for the donor. If the donee gives any consideration at all it is not a donation. The donor may not impose conditions which could enable him or any connected person in relation to himself to derive some direct or indirect benefit from the application of the donation.”

Annexure A goes further to include what does NOT constitute a bona fide donation and the following do not qualify for Section 18A receipts:

  • The donation of services rendered, such as when a professional person renders a skill free of charge.
  • An amount paid for attending a fundraising dinner, dance or charity golf day.
  • The amount paid for the successful bid of goods auctioned to raise funds by an organisation and memorabilia, paintings, etc. donated to be auctioned to raise funds
  • Amounts paid for raffle or lottery tickets.
  • Amounts paid for school fees, entrance fees for school admittance or compulsory school levies.
  • Value of free rent, water and electricity provided by a lessor to the lessee which is an approved PBO.
  • Payments in respect of debt due

Annual Section 18A Exemption Approval

SARS goes on to advise organisations that the exemption approval is subject to annual review by the Tax Exemption Unit upon receipt of an annual income tax return and S18A supporting documentation. Furthermore SARS must be informed in writing within 21 days of any change in registered particulars (e.g. Representative, change of name, address, trustee details, office bearers, etc.). 18A funds may only be provided to organisations approved for exemption and Section 18A.

In essence this means that an organisation’s Section 18A status will be reviewed annually and failure to comply with the SARS requirements could cause an organisation to lose that coveted status. I am reliably informed that once SARS has revoked an organisation’s Section 18A Tax status it cannot be reinstated but rather has to be reapplied for from scratch. It is undeniable than an organisation which loses their Section 18A tax compliance will lose donors.

Organisations are advised that these reporting requirements do not replace the reporting requirement of the NPO Directorate, which organisations need to comply with to retain their NPO Status.

With acknowledgement to Gordon McDonald, Executive Director, Ubuntu Community Chest. 

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