In South Africa, Section 18A of the Income Tax Act allows individuals, companies, and trusts to receive tax benefits for donations made to registered Non-Profit Organisations (NPOs) or Non-Governmental Organisations (NGOs) with Section 18A status. This is a great way to contribute to a cause you care about while lowering your tax bill. Here’s how it works:

1. How Section 18A Donations Work

• Tax Deduction: If you donate to an organisation with Section 18A status, you can deduct the donation from your taxable income, meaning you’ll pay tax on a smaller amount.
• Section 18A Certificate: To claim this tax deduction, the organisation must issue you a Section 18A certificate as proof that your donation qualifies.

2. Donation Limits

• Individuals & Companies: You can deduct up to 10% of your taxable income in a given year.
• Excess Donations: If your donation exceeds this 10% limit, the excess cannot be deducted in the current year, but it can be carried forward to future years.

3. Example

• Taxable Income: R500,000
• Donation: R20,000 to a Section 18A registered organisation
• Taxable Income After Deduction: R480,000 (R500,000 – R20,000)

This means that you pay tax on the reduced amount, saving you money on your tax bill!

4. Why It’s Beneficial

• Encourages donations to public benefit organisations.
• Reduces your tax bill, so you can contribute to a cause while benefiting financially.

Payroll Donations: Easy & Immediate Tax Savings

Payroll donations allow employees to make tax-deductible donations directly from their salary, providing immediate tax savings. Here’s how it works:

How Payroll Donations Work

1. Employee Opts In: The employee agrees to donate a fixed amount monthly to a registered Section 18A organisation.
2. Employer Deducts the Donation: The employer deducts the agreed amount from the employee’s salary and pays it to the chosen organisation.
3. Tax Benefit Applied: The donation reduces the employee’s taxable salary for the month, lowering their monthly PAYE (Pay-As-You-Earn) tax. This results in a lower tax deduction and more take-home pay.

Example

• Gross Monthly Salary: R30,000
• Monthly Donation: R1,000 to a Section 18A organisation
• Taxable Income After Deduction: R29,000 (R30,000 – R1,000)
• This reduces the employee’s PAYE tax for the month.

Employer’s Role

• Employers must ensure the organisation is registered under Section 18A and keep accurate records of donations.
• At the end of the tax year, the employer must include the total donation amount in the employee’s IRP5 tax certificate under the “Tax Deductible Donations” section.

Limits for Payroll Donations

• The 10% limit still applies to total donations for the year. Any donations exceeding 10% cannot be deducted in the current year, but can be carried forward for future tax years.

Benefits of Payroll Giving

• For Employees:
• Immediate tax savings on monthly salary
• Simple and automatic—no need to claim at year-end
• For Employers:
• Encourages a culture of giving in the workplace
• Boosts corporate social responsibility efforts

Key Takeaways

• Only donations to Section 18A registered organisations are eligible for tax deductions.
• Donations can be in cash or certain goods (not services).
• Keep your Section 18A certificate for tax purposes.

Making donations through Section 18A is an easy and effective way to support causes you care about while saving on your tax bill. Get in touch with us to find out how you can start contributing today!