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Simon Brown: I'm currently chatting with Neill Hobbs from Hobbs Sinclair Advisory. Neil, thank you for your early morning. Section 18A of the Tax Act covers donations. What are the details here? The most important point is: [the recipients] Must be a company registered with SARS from a public interest organization perspective.
Neil Hobbs: yes. Good morning, Simon. Yes, this is a very easy donation. [receiving] The organization is properly registered with SARS. In fact, the most difficult part is registering with SARS. However, as long as the organization you donate to has a valid 18A certificate, your donations are deductible up to 10% of your taxable income, which is actually quite generous.
Simon Brown: That’s generous – 10% is a significant amount, but I don’t think there’s an upper limit to this. I don't know, but if I were a millionaire, my income could be quite high.
Neil Hobbs: So if you're in an income bracket like R50 million, and you say you'd rather give R5 million to a charity or a public interest organization than give it to the government, you can do that, and you can give it to people directly. You can make an impact. How your tax dollars are spent.
Simon Brown: I think so because I'm not doing this at the R5-million level. What matters is that you receive your certificate. [donee] an organization that certifies the donation; [my] Paper work.
Neil Hobbs: absolutely. So your documents need to be there, and you need a valid certificate with all your tax details, personal information, etc. But yes, it is a very generous donation and can be used for quite a lot of things, including schooling, health care, and general welfare.
Simon Brown: You mentioned school, and the memo that came out the other day was about school. Is this all schools or are these schools also eligible under certain conditions?
Neil Hobbs: Only schools registered under 18A. Currently, most of the Model C schools are registered in his 18A, and I believe some of the private schools are also registered. Businesses can also contribute. In other words, my employer can make a contribution to my child's school and receive it as a tax-deductible contribution.
Simon Brown: Understood. I think many people know about PBO. [public benefit organisations], But schools are naturally public interest corporations, right? This is not tuition fees. Tuition fees are separate from this part of the process.
Neil Hobbs: correct. So I also have to pay tuition fees. One of his schools, which my sons attended, allows you to make a donation along with your tuition, and the donation is used to improve the school's facilities and build things like tennis courts, a space lawn, and an auditorium. I did. This was completely voluntary but encouraged many people to contribute to the school's facilities, which was great.
Simon Brown: absolutely. I think that's a totally great idea. Of course, all I can do is make general donations, so I'd like to change direction a bit. My understanding is that I can donate R100,000 to anyone and it is tax-free. their hand. But I don't get any benefit from it. Because if I'm doing it for, say, my sister or a friend, they're obviously not PBO. To them he can give R100,000. The important thing is that they are not taxed. [receiving] income.
Neil Hobbs: correct. Yes, that's totally true. Therefore, it is different from regular donations, whether it is to the church, family, or relatives.
Housing is also something you can give. Therefore, it is distinct. Donations up to R100,000 are not taxed. But what we're talking about with his 18A is a tax-deductible contribution. Therefore, it will give you a little benefit as well.
Simon Brown: That's the important point. That's a tax deduction.
R100,000 right away – I understand that if I donate to my spouse, I can donate as much as I want to my spouse because Sars doesn’t think that’s a problem.
Neil Hobbs: correct. This is actually a very important point, especially if one of the partners is getting older and is likely to die in the short term. If you pass with a large estate, that estate must be liquidated. And then, perhaps a year or two after her, your spouse dies and the estate disappears again. What I often do in such cases is [to have] Elderly, infirm spouses donate everything to the spouse who is more likely to survive. Therefore, there is no need to drive everything twice in the state for the sake of the family.
That's right, gifts between spouses are completely exempt from gift tax. I think this is a very wise choice.
Simon Brown: Understood. That's cool. And I know that if I give her more than R100,000 and I give his R200,000 to my future best friend instead of my spouse, someone will say, so I'm going to give him an extra R100,000. You are liable to pay tax on Rand 10,000. , as I understand it. And that's 20% tax.
Neil Hobbs: No, it's not.it is you [the donor] Who is responsible?
Simon Brown: That is correct. I am responsible.
Neil Hobbs: Therefore, it is the donor who is liable to pay the tax.
But we tend to focus on R100,000. What we overlook is that there is an additional unspecified amount of donations for the maintenance and welfare of the individual. It really depends on the discretion of the Secretary. However, for example, if my adult son is suffering from a debilitating illness, I can give money for his living expenses, family living expenses, etc., and that amount is not limited to her R100,000. yeah. Welfare donations within the family are also permitted. Not many people know that.
Simon Brown: I had no idea about this. Simply put, it's donation tax, 18A, and whether it's people in need. [donation] The thing you mentioned earlier, or spousal support, is important. That's important. This could benefit the school, benefit another public interest group, or just be a clever tax tactic. People need to be smart about these things.
Neil Hobbs: yes. Some major employers have actually introduced a system to donate money to the schools that their employees' children attend, which is quite interesting. It used to be subject to salary sacrifice. In other words, he can reduce my salary by R1,000 and my employer will give her R1,000 as a contribution to the school. Currently it is limited to her 5% of my taxable income and salary sacrifices are not allowed. So if it's more than 5% of my taxable income, it's taxed as PAE as usual. But for employers, it gives them the opportunity to actually give their employees a little extra without paying taxes and still get a deduction.
Simon Brown: Gotcha. Leave it as is. Thank you, Neill Hobbs of Hobbs Sinclair Advisory, for your tax wisdom this morning. Some are a bit technical and may require you to speak to your accountant, but there are some opportunities here.
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