A donation is a gratuitous disposal by the donor out of liberality or generosity, under which the donee is enriched and the donor impoverished. It is a voluntary gift which is freely given to the donee. There must be no quid pro quo, no reciprocal obligations and no personal benefit for the donor. If the donee gives any consideration in exchange it is not a donation.
7.1 Types of donations
7.1.1 Cash donation
A donation may be made in cash (money), which may include payments by electronic fund transfer (EFT), credit or debit card, or postal order.
The following payments or transfers do not qualify for a deduction under section 18A:
• Amounts paid to attend a fundraising event such as a dinner or charity golf day.
• Memorabilia and other assets donated to be auctioned to raise funds.
• Amounts paid for school fees, school entrance fees or compulsory school levies.
• Amounts paid for raffle or lottery tickets.
• Amounts paid for the successful bid for goods auctioned to raise funds.
• The value of free rent, water and electricity provided by a lessor to the lessee which is a section 18A-approved organisation.
• Payments of debt owed by a section 18A-approved organisation, for example, the cost of repairs to a section 18A-approved organisation’s vehicle paid to the service station on behalf of that organisation and not paid directly to the section 18A-approved organisation.
• Prizes and sponsorships donated for a fundraising event such as a charity golf day.
• Tithes and offerings to churches or other faith-based organisations in support of their religious activities.
• Membership fees.
• Promissory notes.
• Payments made in future instalments and post-dated cheques.
7.1.2 Donation of property in kind
Donations of property made in kind may include the following:
• A financial instrument provided it is –
i) a share in a listed company; or
ii) a share issued by a “financial institution” as defined in section 1 of the Financial Services Board Act 97 of 1990.
• Trading stock which forms part of the business undertaking or trading activity conducted by the taxpayer. Such trading stock may include livestock or produce donated by a farmer, goods such as computers, foodstuffs, medical supplies, furniture and motor vehicles.
• An asset used by the taxpayer in conducting the taxpayer’s trade but which is not trading stock. Such assets may include computers, furniture, office equipment, delivery vehicles, cash registers, garden equipment, crockery or kitchen utensils.
• An asset which is not trading stock and is also not used in the business of the taxpayer. Such assets may include personal assets or assets bought by the taxpayer such as vehicles, computers, furniture or sport equipment.
• Property purchased, manufactured, erected, installed or constructed by or on behalf of the taxpayer. Property of this nature may include carpets or cupboards installed, security fencing and buildings such as classrooms erected by or on behalf of the taxpayer for purposes of conducting any PBA in Part II.
A donation of property in kind must be used by the section 18A-approved organisation in carrying on any PBAs in Part II.
The Act specifies how the values to be placed on donations of property in kind must be determined – see the Tax Exemption Guide for Public Benefit Organisations in South Africa (Issue 5) in paragraph 21.6.
A specific formula must be used to determine the amount of any deduction that is claimed by any taxpayer under section 18A for any donation of immovable property of a capital nature when the lower of market value or municipal value exceeds cost.
No deduction will be allowed for any donation of any property in kind which –
• creates or is subject to any fiduciary right, usufruct or other similar right; or
• constitutes an intangible asset or financial instrument, unless the financial instrument meets the requirements set out above.
7.1.3 Donation of a service
The donation of a service such as time, skill or effort to a section 18A-approved organisation will not qualify as a deduction for purposes of section 18A since a service is not a donation of property made in kind. For example, a professional person such as an auditor, artist (including a singer, musician or entertainer), medical doctor, lawyer, accountant, plumber or electrician who renders a service free of charge to a section 18A-approved organisation will not be entitled to a tax deduction for the value of the service.