A “Rough-and-Ready” Summary of the Effect of Charitable Donations on Tax – By Don Mahon

 

“I like to pay taxes. With them, I buy civilization.”
― Oliver Wendell Holmes Jr.

I was recently asked to explain, in less than a page, how charitable donations have an effect on taxation. Here is my attempt. Please note that what is contained below is a very general summary and should not be followed on the basis that it may constitute legal advice.

The general principle is that, in order to calculate your taxable income, you add up your gross income and deduct all allowable expenses. Some  allowable expenses are specifically dealt with in the Income Tax Act but, generally speaking, these are all expenses legitimately incurred in the production of your income. However, in order to incentivise charitable giving, the legislature has allowed you to deduct from your gross income, any donations made to registered charitable institutions. These donations are therefore treated as a business expense, even though they are not incurred in the production of your income. Qualifying donations also attract Broad Based Black Economic Empowerment points, but that is not the subject matter of this post.

If you are an individual, as opposed to a company, you can deduct the prescribed rebate from this amount before you get your taxable income.

Once you have calculated your taxable income, you then apply a prescribed percentage depending, either, on whether you are an individual, a trust or a company/close corporation and if you are an individual, on what tax bracket you fall into.

So let’s assume that you are a company with a gross income of R1 million per year, with expenses of R500 000 per year.

Your taxable income would be R500 000 to which you would apply a prescribed rate of 28%. You would therefore pay R140 000 in tax.

If, however, you made qualifying charitable donations of R10 000, your taxable income would be R490 000 and you would pay R137 200 in tax.

Therefore, you can effectively set off your charitable donations against your income in order to reduce your tax liability.

 

A step closer to the re-opening of land restitution claims in South Africa

Rose Attorneys's avatarLegal tips and updates by Rose Attorneys, Cape Town www.roseattorneys.co.za

On 25 February 2014, the national assembly passed the Restitution of Land Rights Amendment Bill, which will in its current form allow for new land restitution claims to be lodged until 30 June 2019. Many of those who were dispossessed of land missed the original deadline of 31 December 1998, and thus were denied redress. The Department of Rural Development’s assessment of the original process identified shortcomings, resulting in the recommendation to reopen the process. 

The Bill will now be considered by the National Council of Provinces, before it can become law.

While the passing of the Bill is an exciting development for the many who were shut out of the process owing to lack of information or poor support in the 1990s, it is noteworthy that the budget of the Commission which handles land restitution claims has been repeatedly cut in recent years. The Commission currently sits with a…

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