How the Act Works
Prior to 15 July 2001, donations were only deductible where a taxpayer made a donation to an educational body that could issue a tax certificate in accordance with section 18A of the Income Tax Act. In reviewing the rules relating to tax exempt bodies in South Africa, Government made the decision that the deduction of donations for tax purposes should be broadened to some degree.
In terms of section 18A, a deduction (subject to a limit) is allowed in respect of the sum of bona fide donations in cash or kind made by a taxpayer, during the year of assessment, to any –
which carries on any public benefit activity (determined by the Minister) in the Republic and which complies with the requirements of subsection (1C) or any additional requirements prescribed by the Minister;
as does not exceed 5% of the taxable income of the taxpayer before the deduction under this section and section 18 (medical).
The public benefit activities which the Minister has approved for section 18A deduction purposes are set out in Part II of the 9th Schedule to the Income Tax Act.
This section makes a claim for a deduction subject to the submission of a receipt as prescribed and also provides for the valuation of any donation of property in kind.
In summary, section 18A entitles a taxpayer (individual, company, close corporation or trust) to deduct annually donations to certain public benefit organizations not exceeding 5% of taxable income. The “taxable income” for this purpose is the donors’ taxable income as calculated before allowing the deduction for medical expenses and the deduction of the donation.