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SIMON BROWN: I’m chatting now with Neill Hobbs from Hobbs Sinclair Advisory. Neill, I appreciate the early morning time. Section 18A of the tax code covers donations. What are the details here? The most important point is that [the recipients] need to be companies registered with Sars in terms of public benefit organisations.
NEILL HOBBS: Yes. Good morning, Simon. Yes, it’s a very straightforward donation, provided the [receiving] organisation is properly registered with Sars. The most difficult thing is actually to get registered with Sars. But as long as the organisation you’re donating to has a valid 18A certificate, then your donation is deductible up to 10% of your taxable income, which is actually quite generous.
SIMON BROWN: That is generous – 10% is a chunky amount, and there’s no cap on this, I’m thinking; I don’t know, if I’m a billionaire, my income could be quite chunky.
NEILL HOBBS: So if you are in a sort of R50 million income group and you say, I’d rather put R5 million towards a charity or a public benefit organisation of my choice than give it to government, you can do it and have a direct influence on how your tax money is spent.
SIMON BROWN: I take that, because I do this not on the R5 million levels. What’s important is I get a certificate back from the [donee] organisation to prove that donation, for [my] paperwork.
NEILL HOBBS: Absolutely. So the paperwork has to be there and you have to have a valid certificate that mentions all your tax details and your personal details and so forth. But yes, it’s a very generous donation and can be used for quite a few things, including schooling, medical care and general welfare.
SIMON BROWN: You mentioned schools, and the note that came out just the other day was around schools. Is this all schools or again, are these schools that are eligible under certain conditions?
NEILL HOBBS: Only schools that are registered under 18A. Now I think most of the Model C schools are registered with 18A and I imagine some of the private schools would be. Corporates can also contribute. In other words, my employer can make a donation to the school that my child attends and have that as a tax-deductible contribution.
SIMON BROWN: Okay. I think many folks might have known about the PBOs [public benefit organisations], but of course the school is a public benefit organisation, isn’t it? This would not be school fees. Your school fees are separate from this part of the process.
NEILL HOBBS: Correct. So school fees you’ve got to pay. At one of the schools that my sons attended, there was an option for you to give a donation alongside your school fee, and those donations went to improving the facilities of the school and building tennis courts or astroturfs or auditoriums and so forth. It was entirely voluntary, but it was something that encouraged many people to contribute to the facilities of the school, which was great.
SIMON BROWN: Absolutely. I think it’s an absolutely excellent idea. I want to switch direction slightly, because of course there are just general donations that I can make. As I understand, I can make a R100 000 donation to anybody and it’s not taxable in their hands. But I don’t get the benefit from it because of course if I’m doing it, say for my sister or a friend of mine, they’re obviously not a PBO. I can give them R100 000. There the key thing is they don’t get taxed as [receiving] income.
NEILL HOBBS: Correct. Yes, that’s absolutely correct. So it is different from what would be your normal giving – whether it’s to your church or family or relatives.
Housing is another thing that you can give to. So it is distinct. You are not taxed on the donation up to R100 000; but what we’re talking about with the 18A is a tax-deductible donation. So it gives you a bit of a benefit as well.
SIMON BROWN: That’s the key point. It’s that tax deduction.
Quickly on the R100 000 – if I donate to my spouse, I understand I can donate as much as I want to my spouse because Sars considers that to not be an issue.
NEILL HOBBS: Correct. That’s actually quite an important point, especially when one partner is becoming elderly and likely to die in the short term. If you pass with a big estate, that estate that has to be wound up; and then your spouse passes maybe a year or two later and that estate is wound up again. So what I do quite often in those instances is [to have] the elderly, the spouse who is sickly, donate everything to the spouse who is likely to survive. So you don’t have everything caught up in the state twice for the family.
So yes, inter-spousal donations are completely free of donations tax, and I think that’s a very smart move.
SIMON BROWN: Okay. That is cool. And then, because I know someone’s going to say if I donate more than R100 000 – not to my spouse, but to my best friend down the road – and I give them R200 000, they’re liable for tax on the extra R100 000, as I understand. And that’s a 20% tax.
NEILL HOBBS: No, it’s not. It is you [the donor] who is liable.
SIMON BROWN: That’s right. It’s me who is liable.
NEILL HOBBS: So it’s the donor who is liable for the tax.
But we tend to focus on the R100 000. What we overlook is there’s an additional and unspecified amount for donations towards the upkeep and welfare of a person. That is really subject to the commissioner’s discretion. But, for example, if my adult son is suffering a debilitating disease, I can give money to him for his upkeep and the upkeep of his family and so forth, and it’s not limited by that R100 000. So sort of ‘in-need’ welfare donations within families are also allowed. Not many people know that.
SIMON BROWN: I was totally unaware of this. The short answer is that donation tax, the 18A and whether it’s the in-need [donation] you just mentioned or for spousal support, is important; it’s significant. This can benefit schools, benefit other public-benefit organisations, or just be clever tax work. Folks need to get smart around these.
NEILL HOBBS: Yes. It’s quite interesting because some of the big employers have actually implemented a system where they make a donation to the school that the employee’s children are attending. That used to be subject to a salary sacrifice. In other words, I could drop my salary by R1 000 and my employer would give R1 000 to the school as a donation. That is now limited to 5% of my taxable income, and I’m not allowed to do a salary sacrifice. So if it’s more than 5% of my taxable income, I’m then taxed on it as PAYE, as normal. But it does give that opportunity for employers to actually give a little bit extra to their staff without their staff paying tax on it, and they still get the deduction.
SIMON BROWN: Gotcha. We’ll leave it there. Neill Hobbs from Hobbs Sinclair Advisory, I appreciate the time this morning making you smarter around tax. Some of it may be a little bit technical, and maybe we need to speak to an accountant, but there are some opportunities here.
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