PBO’s Section 18A certificate – When to issue it

By Seelan Muthayan

Public Benefit Organisations (PBOs) generally require funding. Although donations are much needed they do have their own tax implications.

A question that often gets asked is, “When should a section 18A certificate be issued?

Section 18A in essence allows a taxpayer, who has made a bona fide donation to a PBO or certain other institutions, to claim a tax deduction subject to a limit.

To claim a tax deduction, the taxpayer must be in possession of a section 18A certificate, which is issued by the recipient PBO for activities listed in the ninth schedule and approved to issue section 18A certificates by the South African Revenue Service (SARS).

The section 18A certificate may only be issued in respect of donations received in cash or kind (other than services). A misconception is that if the donation consists of free services rendered to the PBO, the PBO must also issue a section 18(A) certificate to the provider of the service. This is not the case.

PBO’s are often placed under pressure by donors to issue a tax invoice and a section 18A certificate (used as source documentation) before payment is made. To comprise a donation, it should be a gratuitous disposition and not payment for the supply of goods or service. As a result, a tax invoice should not be issued. The issuing of a tax invoice and a section 18A certificate will allow the donor to claim both an input tax deduction for VAT and a tax deduction for the Income tax purposes.

The PBO may need to account for VAT to SARS in respect the tax invoice issued which means that it has less funds available to carry out its activities.

BDO will be hosting a workshop which addresses the VAT and Income Tax consequences for PBOs on 20 September 2018. For more information or to register for the event contact us at [email protected]

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