Last week I spoke about why you pay tax and mentioned the fact that some people do not feel happy about paying tax when they believe it is not spent in the way they believe it should be. There is, however, a way of making sure that some, at least, of your hard earned money goes to the cause you believe to be the most deserving and keeps that money out of the taxman’s hands.
If you make a donation to a qualifying “Public Benefit Organisation” (PBO ) which provides you with a “Section 18A” certificate you may deduct the amount of that donation from up to 10% of your taxable income (excluding retirement and severance lumpsums and foreign tax deductions). In this way you reduce your tax by paying some of your income to your own chosen cause.
By way of example, let’s say you believe that Government should spend more money on providing excellent healthcare for sick children. And you think the Children’s Hospital Trust does a good job at helping to keep the Red Cross War Memorial Hospital equipped with the best facilities for sick children. Let’s also say you have R500 000 taxable income (this could be salary or trading income). If you donate up to R50 000 to the Children’s Hospital Trust, which will provide you with a section 18A certificate (the South African Revenue Service (SARS) has approved it to do so), you will only pay tax on R450 000 (tax of R95 655 (2020 tax year)) not R500 000 (tax of R106 059 (2020 tax year). And it will feel good to know you have decided, rather than the Government having decided, where that money goes.
So, to what kind of organisations can you donate to receive a section 18A certificate? The list is long and is contained in “The Ninth Schedule” of the Income Tax Act, so you are not confined to a limited few. The list of types of PBO’s is given under 5 headings: 1.Welfare an Humanitarian causes (which includes 16 types of PBO’s, for example, the care or counselling and education of physically or mentally abused and traumatised persons; disaster relief; poverty relief; promotion of human rights); 2.Health Care; 3. Education and Development; 4. Conservation, Environment and Animal Welfare; and 5. Land and Housing. Whatever you feel is the most important.
The key is to make sure the organisation has been approved by SARS so that is can issue you with a section 18A certificate, and to make sure it has your details so it can send the certificate to you. Then you just need to make sure those details are filled in correctly on your tax return to pay less tax or get a refund.