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How to be upstanding – and save tax
Judaism places a moral and ethical obligation on its people to give tzedakah (charity) regularly. The root of the Hebrew word is tzadek meaning a righteous person. Tzedakah is much more than a spontaneous act of goodwill or generosity, and the sages tell us that this mandatory act is to be performed even by those of limited financial means. It is also spiritually uplifting, and is considered to be one of the three main activities which we believe can have a positive influence on a potentially unfavourable heavenly decree.
ANTHONY CHAIT
South African tax laws encourage and promote giving to charity through a mechanism known as section 18A. Both a company and an individual can derive a tax deduction by making donations. However, not all charities entitle the donor to a tax deduction. The South African Revenue Service (SARS) approves certain public-benefit organisations (PBOs) that may accept donations. For this, the PBO issues a special certificate that needs to be retained until you prepare your annual income tax return.
A division within SARS, known as the tax exempt unit, receives applications from PBOs and applies strict criteria before granting approvals. Many Jewish organisations have obtained PBO status, and are therefore in a position to receive donations. These are a valuable way of raising funds to cover expenses so that these organisations can continue to play their vital role in our community.
As the end of the tax year is fast approaching – 28 February – it is time to prepare a provisional tax return. You can reduce the amount of provisional tax that you have to pay by making a donation to a PBO under section 18A of the Income Tax Act, 58 of 1962.
How do you determine the tax deduction?
Individuals may deduct up to 10% of their taxable income by way of tax deductible donations.
For example, if a taxpayer has an annual taxable income of, say, R1 500 000, then he or she can make donations of up to R150 000 which would then reduce their taxable income to R1 350 000.
This would result in a tax saving to that person of R52 500. This is calculated using an average tax rate of 35%.
Your accountant can assist you in calculating the exact amount that you will save.
A family trust that has significant taxable income is also permitted to deduct donations to PBOs.
If the trust’s taxable income is R5 000 000, then donations at the discretion of the trustees are tax deductible up to R500 000.
The tax saving is 45%, which on a donation of R500 000 amounts to R225 000.
Companies, too, can deduct 10% of their taxable income, and this is the ideal way for corporates to demonstrate social responsibility to the community. In the case of public companies, they are required to publish an integrated report in conformity with international accounting standards.
There is the very real possibility of saving tax in the next few days by making donations to worthy Jewish organisations, and in so doing, reduce provisional tax. Section 18A certificates will be issued by PBOs in coming months in time for the commencement of the SARS tax filing season, which opens on 1 July. As part of the SARS e-filing process, the section 18A certificates will be required to be uploaded as part of supporting documents for the verification of your assessment.
- Anthony Chait is Chief Executive of Zeridium, a tax and exchange-control advisory firm. anthony@zeridium.com