Tax and SARS knowledge base
Can a company deduct a qualifying section 18A donation?
Can a company deduct a qualifying section 18A donation?
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Direct answer
A company may claim a section 18A deduction where it makes a bona fide qualifying donation to an organisation that is approved to issue section 18A receipts, and it holds the required receipt or other permitted evidence. The deduction is limited, so paying money to a charity does not automatically produce a full tax deduction in that year.
The recipient’s general PBO status is not enough on its own. SARS explains that section 18A approval is a further approval for specific organisations and approved public benefit activities. Check approval and documentation before payment, rather than trying to repair the tax file at year end.
What this means in practice
Companies often describe a payment as a donation when it is actually sponsorship, advertising, a staff event, a shareholder-related payment or a purchase of goods and services. The label on the payment does not decide the deduction. Start with the facts: was it a genuine donation, did the company receive a direct or indirect benefit, and is the recipient able to issue a valid section 18A receipt for the payment?
A proper donation file is important. It should show the recipient, date, amount or property donated, method of payment, authorisation and receipt. If property is donated, record exactly what was transferred and how its relevant value was determined. A simple thank-you email is not a substitute for a compliant section 18A receipt.
SARS says a taxpayer making a bona fide cash or property donation to a section 18A-approved organisation can be entitled to a deduction when supported by the necessary receipt. It also warns that conditions which let the donor or a connected person obtain a direct or indirect benefit can be problematic. That makes arrangements such as branded events, naming rights, preferential access and related-party payments worth reviewing carefully before calling them donations.
Step-by-step
- Identify the recipient and purpose.
Obtain the recipient’s legal name, registration details and the specific project or public benefit activity the payment will support. Do not rely on a generic social-media page or a marketing brochure.
- Confirm section 18A approval.
Ask whether the organisation is approved to issue section 18A receipts for the intended donation. Retain the answer and, where available, evidence of the approval. A PBO can be tax exempt but still not have the further section 18A approval required for deductible-donation receipts.
- Test whether the payment is a bona fide donation.
Review the agreement and expected benefit. If the company receives advertising, tickets, services, products or a benefit for a connected person, the payment may not be a simple donation. Separate transactions clearly rather than putting one blended amount on a donation receipt.
- Obtain the receipt promptly.
Request a section 18A receipt in the recipient’s proper details and keep it with proof of payment. Where employees donate through payroll, an employees’ tax certificate may be relevant in the circumstances SARS describes, but a company should not assume that employee evidence supports the company’s own deduction.
- Calculate the tax position for the applicable year.
The deduction is subject to a limit. The tax preparer should use the correct statutory limit and current-year computation, then track any qualifying amount that is not used. Do not carry a percentage from an old article or another taxpayer’s calculation into the company return.
- File the complete evidence.
Keep board approval, payment proof, correspondence, receipt and tax working papers together. This is especially important for in-kind donations, material donations and donations connected with a director or shareholder.
Documents and records to keep
Keep the recipient’s confirmation of section 18A approval, the section 18A receipt, bank proof, donation agreement and board or management approval. For property, retain ownership records, valuation support, transfer evidence and correspondence showing that no reciprocal benefit was supplied. Keep the tax computation showing the claimed amount and any relevant carried-forward balance.
Important limits and exceptions
This guide does not establish whether a recipient qualifies for PBO or section 18A approval. It also does not determine the special tax treatment of sponsorship, marketing, goods donated from trading stock, foreign recipients or payments connected with a shareholder.
The applicable limit and carried-forward treatment are legal and period-specific. A company should calculate them using the law for its year of assessment. Be cautious where an arrangement produces publicity or a commercial benefit. A payment can be deductible on another basis, or not deductible at all, but that needs a separate analysis.
When to get tailored advice
Get advice before claiming a material in-kind donation, a donation involving a related party, a payment bundled with sponsorship, or a donation that may exceed the current annual limit. Specialist advice is also appropriate where the recipient’s approval status is unclear.
TaxProof can help build a donor evidence file and identify questions for the recipient. We cannot issue a section 18A receipt or decide that a reciprocal-benefit arrangement qualifies as a donation.