By Limakatso Mtau, Junior Tax Consultant and Johann Benadé, Associate Director
Public Benefit Organizations (PBO’s) play a vital role in South Africa, a country with significant social and economic challenges. These organizations aim to address various social issues and improve the well-being of individuals and communities in need.
For example, many PBO’s actively work towards reducing poverty and addressing its associated challenges. They provide support to vulnerable groups, such as unemployed individuals, children living in poverty, and families facing financial difficulties.
They may offer food aid, access to healthcare, skills training, and income-generation programs to uplift communities and alleviate poverty.
Some PBO’s provide essential social services to marginalized populations, offering assistance in areas such as healthcare, education, housing, and social welfare. This includes providing access to medical care, counselling, education support, and social grants for individuals who meet specific criteria.
Many people in South Africa are struggling financially. This may be due to them being unemployed or suffering from the high cost of living due to inflation, rising interest rates, etc. South Africa's unemployment rate in the first quarter of 2023 was recorded at 32,9 % and is among the highest in the world.
The challenge of unemployment in South Africa is compounded by the uneven distribution of joblessness across the population. The youth are disproportionately affected, with a staggering 61% of those aged 15-24 being unemployed during the last quarter of 2022.
In summary, PBO’s play an important role to address the social, economic and financial challenges in South African society.
In order to do so, they rely more and more on funding from the private sector, in the form of donations.
There are several reasons why it is important for companies to donate funds to PBO’s.
Donating funds to PBO’s is a way for companies to fulfil their corporate social responsibility commitments. It demonstrates their commitment to giving back to society and investing in the well-being of communities. Such initiatives can enhance a company's reputation and brand image, improving public perception and customer loyalty.
Companies have the ability to make a significant positive impact on social issues by supporting PBO’s. Through their donations, companies can contribute to poverty alleviation, education, healthcare, and other essential services. This support can help uplift marginalized communities, improve quality of life, and create a more equitable society.
Companies operate within communities and supporting PBO’s allows them to address the specific needs and challenges faced by those communities. By supporting PBO’s, companies can have a direct and meaningful impact on the well-being of their customers and neighbours.
Similar considerations apply to individuals. Many high net-worth individuals annually donate large amounts to PBO’s. Recognizing the socioeconomic disparities in the country, individuals who have the means often donate to charity as a way to alleviate suffering, address social inequality, and uplift disadvantaged communities.
However, donations are also made on a regular basis by ordinary South Africans. Many people donate to charitable causes as a way to contribute to the country's healing and transformation. It is seen as a means to rectify past injustices and build a more inclusive and equitable society.
Section 18A of the Income Tax Act provides for a tax deduction of up to 10% of a taxpayer’s taxable income in respect of donations made to qualifying PBO’s. This includes companies as well as individuals.
The tax benefit provides an additional motivation for people to contribute to charitable causes, as they can receive tax deductions or other financial benefits while supporting organizations and initiatives aligned with their values.
Up to now, PBO’s were merely required to issue receipts containing prescribed information (commonly referred to as section 18A certificates) in respect of all donations received by them. This has now changed. All PBO’s will now also have to submit to SARS bi-annual reports of all donations received by them.
This requirement is similar to the bi-annual PAYE returns that all employers have to submit to SARS.
According to the new requirements announced by SARS on 30 June 2023, PBOs or any person that issues a receipt in terms of section 18A(2) of the Act are now required to submit third-party returns for any amount received as a donation, in the form of an IT3(d) or data compiled in accordance with SARS Business Requirement Specification, IT3 Data Submission. The return must be submitted electronically on the SARS e-filing platform.
Annually, the first submission will be for the period from 1 March to 31 August and will be due by 31 October. The second submission will be for the period from 1 September to the last day of February and will be due by 31 May.
In order to allow affected PBO’s the opportunity to upgrade their systems and processes to implement the new filing requirements, they will not have to submit a return for the period from 1 March 2023 to 31 August 2023.
The compulsory disclosure and submission of section 18A certificate information by PBO’s will help in avoiding errors when capturing the section 18A certificate information on the donor’s return, which sometimes led to disallowance of the donation deduction. The electronic data submission to SARS will also be beneficial especially to donors as it will be automatically pre-populated on the income tax return of the taxpayer making the donation, similar to the IRP5 certificates issued by employers to their employees.
SARS also requires more detailed information to be included on all section 18A certificates issued on or after 1 March 2023. These requirements are contained in Public Notice 3631, issued on 30 June 2023, detailing returns of information to be submitted by third parties in terms of section 26 of the Tax Administration Act No. 28 of 2011. Among other things, the Notice also prescribes onerous third party reporting obligations on trusts, which are discussed in the following article:https://www.bdo.co.za/en-za/home/featured-insights/new-reporting-obligations-for-trustees-sars-releases-additional-requirements-for-the-2023-annual-tax.
Until the end of February, all that was required for a valid section 18A certificate was: the name, reference number, address and contact details of the PBO; details of the donation (date of receipt, amount and nature of donation if not made in cash); name and address of the donor; and confirmation that the donation would be used exclusively for the object of the PBO.
From 1 March this year, the certificate must also include:
- Donor nature (natural person, company, trust etc.);
- Donor identification type and country of issue (in the case of a natural person);
- Identification or registration number of the donor;
- Income tax reference number of the donor (if available);
- Contact number of the donor;
- E-mail address of the donor;
- A unique receipt number; and
- Trading name of the donor (if different from the registered name).
Organisations that are unsure of their reporting obligations or require assistance with implementing the necessary changes to their systems and processes, can contact us.