Durban - Donations have poured in as institutions and individuals have banded together to bring aid to the destitute during the Covid-19 pandemic.
However, the beneficiaries of donations, such as funds or non-profit organisations, are often not entirely transparent about the tax implications for donors, said Duncan Luke, chief executive of The Social Collective.
According to Luke, people are not aware of the rules that govern donations, especially with the fast changing financial policies the government is implementing in response to Covid-19 support, whether for private donations, or payroll giving.
This, Luke said, could be used to claim tax deductions or reduce one’s payable tax, based on supporting various approved Section 18A (Income Tax Act) causes, or the Solidarity Fund.
“Giving is a critical part of society, it’s what makes society more just and pleasant. However, it is worrying when charity funds pop up, especially during a time of crisis, and simply appeal to people to donate, with the promise of a tax benefit,” said Luke.
Luke said donations should form part of one’s financial planning.
“A tax calculator can help you determine what tax rebates you can expect from donations. It is highly misleading to set up a fund and declare that all donations are tax deductible, without laying out the parameters and regulations that govern donations, as per Section 18A of the Income Tax Act,” Luke added.
In South Africa, companies that wish to donate funds need to know that legislation permits for R10000 a year to be used to gain a tax rebate. Above that amount, the donor will get taxed 20% on their donation, however Section 18A-approved organisations, with Public Benefits Organisation (PBO) status, are
exempt from this limit.
“This is a separate tax and is managed as such. In the case that you give an employee R12000 as a donation, you will be required to pay 20% on the amount. If the donations are to a PBO, then the amounts are exempt from the limit. However the claim amount is capped at 10% of taxable income per year, and if amounts are given over the 10%, the ‘tax saving’ will be carried forward to the next financial year,” said Luke.
Similarly, individuals can give up to R100000 a year tax-free, after which they will also have to pay tax 20% for non-deductible donations between R100000 to R3.5 million. A tax of between 20-25% applies on any amount donated above the R100000.
“Donations to (SA Revenue Service) Sars-approved Section 18A Public Benefit Organisations are excluded from the limit too, and again other limits do apply on your ‘tax saving’ planning for donations, such as the 10% that can be claimed per year.
“Donations to the Solidarity Fund have a limit of 20% and the donation cap for employees, giving through payroll giving, may be going up from 5% to about 33%, which is a substantial tax saving for the donor,” he said.
Becoming more savvy about the tax implications of donating money and donating amounts that allow donors - individual and corporate - to take advantage of tax rebates is not only good for the taxpayer, but also for the beneficiaries, Luke added.
“If donations are based on sound financial planning, it allows people to build relationships with causes and support them in the long term. While you get your tax benefit, the beneficiaries can plan their work better, based on expected donations,” he said.
Another area in which transparency was needed was expenditure.
“In many cases, money is given, but then there is no one to account for where this money goes or what exactly it is being used for. Funds donated should contribute to several key issues in South Africa. Donor’s don’t need to know where the funds go; however, transparency in this regard will go a long way,” said Luke.
Similarly, during this time, South African financial institutions and cybersecurity businesses have called on individuals to be on high-alert when donating in the name of Covid-19.
“Both Interpol and Europol have warned of huge spikes in Covid-19 fraud. In mid-April, Google reported that in just one week, it saw more than 18 million daily malware and phishing emails related to Covid-19 scams that were sent via Gmail alone,” said Pankaj Bhula, Check Point’s regional director in Africa.
To protect yourself from falling victim to phishing, be suspicious of any communication from a familiar brand or organisation that asks you to click on a link or open an attached document, no matter how official it appears to be, Bhula said.