Advance Notice - Changes coming to 18A Receipts
The current provisions of section 18A of the Income Tax Act requires that 18A receipts which are issued to donors include the following details:
- Your organisation’s name, address and PBO number;
- The donor’s name and address;
- The date the donation was received;
- The amount of a monetary donation/nature and value of property donated;
- The required certification being: we hereby certify this receipt is issued for the purposes of section 18A of the Income Tax Act, 1962, and that the donation will be used exclusively for the objects of [your organisation’s name].
Over the last couple of years, SARS has gained ground in being able to detect fraudulent 18A tax deduction claims and they now really need to be in a position to connect the dots and make sure that the amounts that taxpayers claim as 18A deductions are actually making their way to the 18A approved organisation as claimed. The first step taken in this direction was a couple of filing seasons back, when the systems at SARS were linked so that there was an automatic rejection of tax deduction claims if the PBO number inserted was not a valid number or was not a number of an organisation having 18A status.
This resulted in a huge panic as it had literally never mattered before whether actual, valid donors inserted the NPO registration, trust registration, NPC registration or any other number they chose. Organisations with large numbers of regular small donations from individuals had to hurriedly educate and inform donors (and in some cases, obtain ‘new format’ PBO numbers from SARS to be inserted with efiling). At that time SARS asked us not to publicise their new ‘super power’ () as they had a once off opportunity to detect fraudsters.
In the context of 18A regulations, we need to remember that there is a ceiling (10% of taxable income) on how much taxpayers can claim in each tax year. Therefore any reduction in fraudulent claims should result in an increase of actual donations to organisations which do have 18A status.
The practical gap that exists is that, aside from conducting audits of both donor and recipient organisation, SARS currently has no easy way to detect whether a tax claim for a deduction purportedly made to an organisation which has 18A status, was ever actually given to the organisation named. [A side note here: publishing your PBO number on websites and email footers is good for boosting credibility with potential donors, but also provides the details that fraudsters need to make fake 18A tax deduction claims.
All this so far is context to try to understand the following: The Tax Administration Laws Amendment Bill published on 28 July 2021 contains the following, seemingly minor and boring, proposed addition to section 18A:
“18A (2)(a)(vii) such further information as the Commissioner may prescribe by public notice, or”
This addition is to the list of items or information that must be included on the 18A receipt issued and does not specify what additional information should be included, but gives the Commissioner for SARS the ability to issue a notice giving the details of further information which will need to be collected by the organisation and then included on the receipt issued to donors.
Thinking it through, the practical outcomes must be directed at allowing SARS to access details so they can cross-check claims made for tax deductions against receipts issued by organisations. To my mind, (and confirmed in conversation with SARS) the most obvious detail would be the tax reference numbers of donors. (Oddly, we find that people are very private about their tax reference numbers. This may be because they are private about their tax affairs and not aware that SARS guard all information very diligently?)
So, if step one is for the organisations to record the tax reference numbers of donors on the receipts issued, the logical next step would be for all organisations to report to SARS on the value of donations, with each value linked to a donor tax reference number. This would complete the circle and allow SARS to reject tax claims for donations not made (or for inflated donations claimed). This would involve some extra administration to collect and report but would be worth it for the gains to the entire sector.
The explanatory note issued by SARS on the amendment supports this interpretation, but with some confusing bits. The SARS note reads as follows: