Section18A Audit Certificate
You will know that section 18A of the Income Tax Act (“the Act”) enables South African taxpayers to deduct, from their taxable income, donations made to an approved public benefit organisation (“approved PBO”), if that donation is supported by a receipt containing the details required by section 18A. You also know that a section 18A receipt may only be issued by an approved PBO for bona-fide donations to be used solely for carrying out public benefit activities that are listed in Part II of the Ninth Schedule of the Act (“Part II”). Are you aware, however, that, under certain circumstances, the approved PBO must obtain and retain an annual audit certificate?
The audit certificate is required if the organisation:
- carries out a mix of public benefit activities, some of which are not approved activities included in Part II; or
- provides “conduit funding” to a mix of organisations, some of which carry out public benefit activities not approved under Part II
To illustrate this potential mix of public benefit activities, an approved PBO may be carrying out religious activities (PBA 5(a) in Part I of the Ninth Schedule of the Act (“Part I”)) that are not approved under Part II whilst also caring for persons afflicted with HIV/AIDS (PBA 2(d) in Part II). This approved PBO cannot issue a section 18A receipt for tithes and donations made in support of the religious activities but can issue a section 18A receipt for donations for the care of persons afflicted with HIV/AIDS.
What is the purpose of the audit certificate?
The certificate is required so that SARS is able to confirm that donations for which section 18A receipts were issued were only used for the activities covered by Part II. The certificate must confirm that all donations received (or accrued) by the organisation, for which section 18A receipts were issued, in each year of assessment were used (either directly or through funding other approved organisations) only in carrying out public benefit activities included in Part II. The certificate for conduit funders must also confirm that any such donations retained (and not granted on) did not exceed the limit for that year of assessment (currently 50%).
What is the nature of the certificate and who can provide it?
A recently issued draft SARS Interpretation Note states that the certificate must be a “physical document” that provides an opinion on the use of the donations for which section 18A receipts were issued. It further states that the person issuing the certificate should be independent of the approved organisation, suitably qualified and capable of performing the appropriate work that enables an opinion to be expressed; for a non-profit company, it suggests that this would be the auditor or independent reviewer, while, for a trust or voluntary association, it would be “a bookkeeper or auditor” not employed by that trust or association who has the capacity necessary to provide the confirmation.
Must the certificate be submitted to SARS with the annual IT12EI income tax return?
An approved PBO is not required to submit the certificate unless SARS requests it as part of supporting documentation to substantiate any aspect of the income tax return or determine compliance with section 18A.
We hope that you will find the above information helpful and that you will let us know if you have compliance issues that we could assist you with.