One cannot easily live in a country like South Africa without being aware of the significant social and environmental challenges we face - government alone cannot solve the overwhelming need that exists.
To participate in this change, it would make sense to have a holistic approach to your wealth and estate planning discussions and to include principles around how your wealth can be applied to creating a legacy as well as how you can maximise your allowable tax deduction.
The solution is probably a lot simpler than you think and can be achieved, whether it is in your personal capacity or for your business, through various avenues that are available. Philanthropy or Social Investment, plays an important role in reducing poverty in communities, promoting the protection of our environment, and contributing to solutions addressing the impact of climate change, which speaks to a better tomorrow for all. In addition to this, your contribution to philanthropic initiatives may enjoy certain tax allowances based on your own individual circumstances.
Currently, income tax legislation places a tax liability on donations, referred to as donations tax. Donations tax is calculated at a flat rate of 20% on the value of the donation up to R 30million. If the donation exceeds R 30 million, then the amount above R 30 million will be taxed at 25%. Individual donations tax only kicks in once donations of more than R 100 000 in a single tax year is made. In other words, multiple donations can be made in a tax year as long as the total value of the donations doesn't exceed R 100 000. Donations to a qualifying PBO is exempt from donations tax and will not form part of the annual tax-free allowance. Furthermore, a deduction for estate duty is allowed for bequests to qualifying PBO's. This means that if the entire estate is bequeathed to a qualifying PBO, no estate duty will be levied. From an income tax perspective, a tax deduction on donations to approved PBO's up to 10% of the donor's taxable income may be allowed.
Only donations to a philanthropic/charitable organisation, that is approved by SARS as a Public Benefit Organisation (PBO), qualifies for tax deductions. An organisation is approved as a PBO if it conducts certain Public Benefit Activities (PBAs). In addition, these organisations must also be approved in terms of section 18A of the Income Tax Act. To claim a deduction of the donation against taxable income the PBAs performed by the organisation, must fall under the following categories:
Key take-away
In conclusion, adopting a social investment stance is about much more than making donations to a cause. It requires a comprehensive approach that rests on three pillars:
Effective social investment requires intentionality, maximising impact, and appropriate legal structures for governance and tax efficiency.
