Danielle Luwes, Tax Director at Hobbs Sinclair Advisory, explains the process and benefits of Section 18A donations, particularly what educational institutions can support through donations.
The South African Revenue Service (SARS) offers favorable tax benefits under Section 18A of the Income Tax Act to encourage individuals and businesses to support educational institutions through donations.
In addition to supporting educational advancement, this provision also allows donors to claim significant tax refunds that cannot be covered by regular tuition or government subsidies.
Understanding Section 18A Contributions
Section 18A donations are a strategic way to support eligible schools and public interest organizations (PBOs) while receiving a tax deduction.
However, it is important to ensure that the institution is approved by SARS as a section 18A organization.
Contributions are deductible from taxable income, up to 10% of the taxpayer's income before other deductions.
This means that if a taxpayer's income before deductions is R1,000,000, they can claim up to R100,000 as a deduction on their donations. Any excess amount over this 10% limit can be carried over to the next year, giving you the flexibility to make larger contributions.
Eligibility and impact of donations
If you make a donation, it is essential to obtain a section 18A tax return from the school to claim the deduction.
These donations can have a huge positive impact. Contributions under Section 18A go a long way toward improving educational facilities and opportunities beyond what regular fees can cover. It's a meaningful way to support education and receive tax benefits.
Thorough compliance
Donors are advised to exercise sufficient knowledge and caution. It is important for both donors and schools to understand the legal distinctions and comply with SARS regulations. We always recommend consulting with a tax professional for guidance.
It is also important to understand the nuances of this tax provision.
There are common misconceptions regarding Section 18A. There is a common misconception that regular tuition fees qualify as tax-advantaged contributions. However, it is important to distinguish these fees from qualifying contributions under section 18A.
Misclassifying tuition fees as donations can result in penalties from SARS. Don't make the mistake.
The provision to claim tax benefits while supporting education highlights an important element of South Africa's tax policy.
This reflects the country's commitment to fostering a culture of community support and social responsibility, as well as encouraging philanthropy for educational development.
Danielle Luwes is a tax director at Hobbs Sinclair Advisory.
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