A company wants to make a monthly contribution to a NPO that will issue an Article 18A donation certificate. The donation is for an elderly person in a care home that can not afford the monthly costs. Question one is what is the limitation to a company fo
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
The deduction, for each year of assessment, is limited to “ten per cent of the taxable income … of the taxpayer as calculated before allowing any deduction under this section” – see section 18A(1)(B) of the Income Tax Act. This applies to all taxpayers, other than where the taxpayer is a portfolio of a collective investment scheme.
Possible issues to consider:
SARS, in their draft interpretation note, states that the purpose of the ‘audit certificate’ is “to ensure that section 18A receipts were issued only for donations received or accrued during the year of assessment6 that would be and ultimately are used for purposes of PBAs in Part II.” We are not sure that an amount earmarked for the benefit of a specific person would constitute a bona fide donation to the approved public benefit in respect of which they would issue the section 18A receipt.
In terms of paragraph 16(1) of, and for the purposes of, the Seventh Schedule and of paragraph (i) of the definition of “gross income” in section 1(1) of the Income Tax Act, an employee is “deemed to have been granted a taxable benefit in respect of his employment with an employer if as a benefit or advantage of or by virtue of the employee’s employment with the employer or as a reward for services rendered or to be rendered by the employee—
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the employer has granted a benefit or advantage (whether directly or indirectly) to a relative of the employee, other than a benefit or advantage in respect of which paragraph 10 (2) (d) applies; or
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anything is done by the employer under any agreement, transaction or arrangement so as to confer any benefit or advantage upon any person other than the employee (whether directly or indirectly),
and such benefit or advantage, if it had been granted directly by the employer to the employee, would have constituted a taxable benefit contemplated in paragraph 2.”