The upside of charitable giving for a taxpayer is usually a corresponding deduction for tax purposes. A taxpayer can show a receipt for a donation made to a public benefit organisation (“PBO”) in terms of section 18A of the Income Tax Act. But what happens when an amount paid to a PBO is partly a donation and partly for taking part in fundraising activities?
SARS has recently answered this question in Binding Private Ruling (“BPR”) 338. BPR 338 confirms that a donor may still receive a section 18A receipt for the portion of a payment made to a PBO as a donation, provided that the amounts treated as donations and purchases respectively, are accurately reflected and easily verifiable.
Background to BPR 338
A point in case: APBO planned to host a fundraising event, managed by an external events management company, as a means of encouraging donations towards its public benefit activities. During the event, attendees would make payments to participate in activities, as well as make donations of money.
The events management company would develop and manage an electronic system which would enable the attendees to make the requisite payments during the event by way of roaming electronic touchscreen devices. The electronic system would distinguish between the payments made as either payment for participation in the activities or as a donation. The amounts would be tallied at the end of the event with attendees able to settle the total amount due for all transactions at the event, by way of a single credit card payment.
The PBO would then use the reports generated by the electronic tracking system to determine which of attendees would be eligible to receive a section 18A receipt, as well as the proper amount to be reflected thereon. Only the donations made by the attendees would be reflected on this receipt.
Outcome of the BPR
On the condition that the tracking system accurately reflected and distinguished between the donations and attendees’ participation, SARS had no concerns with the approach of the PBO in this regard. SARS noted specifically that the payments identified as donations by the electronic tracking system would constitute “‘bona fide’ donations made to a PBO under section 18A”.
SARS’ acceptance of this arrangement shows that payments made to PBO through innovative means, provided that the payments qualify within the ambit of a section 18A donation, will qualify as a deduction from a taxpayer’s income. SARS further confirmed, in BPR 338, that the true nature of a Section 18A donation will not necessarily be dependent on the payment arrangement itself.
Given the recent tax court cases which have been brought against PBOs by SARS, this is a prudent approach taken to ensure that there is no risk assumed in the collection of money. It is expected that any properly managed PBO will certainly make use of this BPR, as well as obtain their own, in order to satisfy the requirements that follow from their own unique events moving forward.
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Written by Thomas Lobban LLB, who is a Tax Associate at Tax Consulting SA, authors of the recently released Expatriate Tax, South African Citizens Working Abroad and Foreigners in South Africa published by LexisNexis South Africa.