SOUTH AFRICA: NEW REQUIREMENTS FOR SECTION 18A CERTIFICATES
Charitable organisations and donors to such organisations should take note of the new SARS requirements regarding tax certificates issued to donors to enable them to claim tax deductions.
A public benefit organisation that has been approved in terms of section 18A of the Income Tax Act 1962 (an 18A PBO and the ITA respectively) must ensure that these certificates contain the updated information as stipulated in section 18A.
Requirements for a valid section 18A certificate
Until the end of February 2023, a valid section 18A certificate had to include the following information:
- 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 will be used exclusively for the object of the PBO, namely to carry on its public benefit activities (PBAs).
In addition to the above, section 18A certificates issued on or after 1 March 2023 must now also include the following information:
- donor nature of person (natural person, company, trust, etc);
- donor identification type and country of issue (in 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;
- electronic mail address of the donor;
- a unique receipt number; and
- trading name of the donor (if different from the registered name).
The additional information is presumably required to promote transparency and prevent abuse.
Audit certificate requirement
Certain types of PBOs are required to obtain and retain an audit certificate in respect of donations received during a tax year, if section 18A certificates were issued in respect of those donations. The requirement to obtain and retain the audit certificate is not new and must be obtained to confirm compliance with the requirements set out below.
The ITA differentiates between two types of PBAs:
- certain types of PBAs would entitle the PBO to qualify for section 18A status. These PBAs are listed in Part II of the Ninth Schedule to the ITA and include PBAs classified under the headings Welfare, Health Care, Education, Conservation and Land & Housing (Part II or 18A PBAs); and
- other types of PBAs, such as those relating to Religion, Cultural Activities, Sport and Research & Consumer Rights, are listed only in Part I of the Ninth Schedule and do not qualify for section 18A status (Part I or non-18A PBAs).
PBOs carrying on both Part I and Part II PBAs qualify for partial section 18A status, but they may issue 18A certificates to donors only in respect of funds used solely to carry on their Part II PBAs. For example, if a PBO carries on sporting activities and also provides education, it may issue 18A certificates to donors only in respect of donations used to provide education, not in respect of funds used for sporting activities.
Certain PBOs provide funds to other PBOs and are referred to as conduit PBOs. They are also subject to additional requirements in terms of section 18A, including that they must:
- distribute at least 50% of donations in respect of which 18A receipts were issued within 12 months of the end of the financial year in which the donation was received; and
- ensure, if they provide funds to a PBO carrying on both Part I and Part II PBAs, that those funds will be used solely to carry on Part II PBAs.
Accordingly, not all PBOs have to obtain audit certificates, only those who carry out both Part I and Part II PBAs, and those who constitute conduit PBOs.
Failure to comply with section 18A of the ITA could result in a myriad of negative consequences, including that the donor may not be able to claim a deduction, or punitive consequences for the PBO itself. It is thus important that PBOs understand the requirements of section 18A before issuing 18A certificates to donors.
* Article written by Aneria Bouwer and Marvin Petersen