Want To Save On Tax? Donate To Charity

Donations made by individuals to certain public benefit organisations can result in the individual reducing his/her tax liability upon submission of their annual tax return, says Daniel Baines, author of ‘How to Get a SARS Refund’.

This potential reduction in liability is dependent on the donation being made to a SARS approved section 18A public benefit organisation.

There is a list of all approved organisations on the SARS website; an example of an approved public benefit organisation is the Save-a- Pet.

You can check with your charity of choice whether they can issue such a certificate prior to making the donation.

Upon donating to such an entity, the entity should issue the individual with a section 18A certificate; this certificate is important as it must be submitted to SARS with the individual’s annual tax return.

 

The following is an example of the reduction in tax liability that an individual may receive upon making a donation to an approved organisation:

Example A – no donation made

  • Taxable income – R400,000
  • Tax liability – R93,039

Example B – donation made

  • Taxable income – R400,000
  • Less donation – R30,000 (donation cannot be more than 10% of taxable income)
  • New taxable income – R370,000
  • Tax liability – R83,739

In this example the individual has a double benefit:
1. They have donated R30,000 to a charity;
2. They have reduced their tax liability by R9,300. This will be paid out as a refund by SARS upon submission of the individual’s tax return, provided the individual can produce a section 18A certificate (please note the payment of a refund will depend on each person’s overall tax situation, but the taxpayer will always receive a reduction in tax liability).

“Donating to a charity of your choice has great benefits, both in terms of the reduction in tax liability as well as the contribution made to society. When donating to an approved public benefit organisation, it is important to request the section 18A certificate, as SARS will deny the donation deduction if this can’t be produced upon assessment,” Baines said.

“Also remember that the higher your marginal rate of taxation the more the donation will reduce your tax liability. In this regard see ‘The more you earn, the greater your retirement tax benefit’,” he said.

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