Advance Notice - Changes coming to 18A Receipts

Nicole Copley | NGO Law

The current provisions of section 18A of the Income Tax Act requires that 18A receipts which are issued to donors include the following details:

18A RECEIPT: 
  • 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.
Logo, company nameDescription automatically generated
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:
2.2 Income Tax Act, 1962: Amendment of section 18A
 The information required by law in the receipts issued for tax-deductible donations is limited and entities issuing the receipts are not required to provide third-party data on the donations to SARS on a systematic basis.  SARS has detected that receipts are being issued by entities that are not approved to do so.  To ensure that only valid donations are claimed and to enhance SARS’s ability to pre-populate individuals’ returns, it is proposed that the information required in the receipts be extended to allow such information as the Commissioner may prescribe by public notice from time to time.  Third-party reporting will be extended in future to cover the receipts issued.”

 If you read it as a whole, the ‘third party’ data on donations refers to the tax reference numbers of donors and the last statement about ‘third party reporting’ being ‘extended in future to cover the receipts issued’ refers to future reports to be lodged by 18A organisations with SARS, as already mentioned.

The puzzling bit of the SARS memo is the sentence in the middle:  ‘SARS has detected that receipts are being issued by entities that are not approved to do so.’   Now, this is not the issue which will be solved by the gathering and reporting of this additional information, as there is already a SARS mechanism in place for this:  when tax deductions are claimed, if the exemption reference number recorded on efiling is not one of an organisation which has 18A status, the tax deduction will be rejected.  The organisation which thought it had 18A but didn’t (surprisingly still a lot of that around) will then face the wrath of the person who gave them the money but can’t get the tax deduction.  It’s a neat, self-solving issue which does not require spending of tax money to police.

The bottom line for 18A organisations is that they should start preparing now for this anticipated change so that when the Commissioner issues the notice they:
  1. Know how to adapt their 18A receipts;
  2. Ensure they collect the required information; and
  3. Have a system (a spreadsheet will do it) in place to record the value of each receipt, linked to the tax reference number of the donor, to make reporting to SARS each year easier.
Watch this space for updates on this important issue.

Nicole Copley | NGO Law

Nicole has consulted to the NGO sector since 1993. She is an admitted attorney (non-practising), has her Masters in the tax exemption laws and is a Master Tax Practitioner. Nicole developed her drafting skills while working as a business lawyer, and she has a pragmatic problem-solving approach to all the work she does. Her depth and breadth of experience over many years and her work with government and a wide range of clients, give her useful perspective and insight. Nicole also lectures and trains on various topics of importance to the NGO sector. She is author of ‘NGO Matters: A practical legal guide to starting up’, and publisher of the series of NGO Matters handbooks.

Other resources

Related articles


All about audit certificates
Tax and Finance
What are they? Audit certificates are a record produced each year and kept on file certifying/giving an opinion on the use of funds for which 18A receipts were issued.  According to s18A(2B), a PBO which falls under section 18(2A), must obtain and retain an audit certificate. This...
Acting outside your objects - Tax and other consequences
Tax and Finance
Some people believe that trading is prohibited for PBOs, and others that all income of PBOs is tax exempt. Neither of these is true, and the answer lies somewhere between the two extremes: Under Section 10(1)(cN) of the Income Tax Act, all non-trading income and some types and parts of tradi...
Taking a fresh look at NPO finance
Tax and Finance
Inyathelo, The South African Institute for Advancement, is dedicated to helping build a strong, stable civil society and democracy in South Africa by contributing to the development of sustainable organisations and institutions. In advisory sessions over the years, many non-profit organisations ...
Top 5 tax myths for non-profits
Tax and Finance
In our experience in working with non-profit organisations, we have encountered some common myths in relation to tax. Unfortunately, the impact of these myths can be devastating for these organisations, so here we try to debunk them. Myth 1: “Non-profit entities are not taxpayers” Every legal...
Top tips for preparing proposal budgets
Tax and Finance
 Ensure that the full, realistic costs of the project are included in the budget, including the staff and support (overhead) costs Projects are generally carried out within the context of an established organisation, with all its necessary infrastructure and systems. It is therefo...
Understanding Section 18A
Tax and Finance
Depending on their activities, public benefit organisations (“PBO’s”), as well as certain institutions and Government departments, can apply to SARS for approval in terms of Section 18A of the Income Tax Act. If this approval is granted, their donors can obtain a limited tax deduction (generally ...


© All rights reserved. 

Back to Top