Donations to Public Benefit Organisations

Donations to Public Benefit Organisations


Some employers operate payroll giving programs that allow their employee to make regular donations to public benefit organisations by way of deduction from their salaries or wages. In the past, employees may only claim those donations as a deduction from taxable income when they submitted their annual tax return.

In order to expand the potential pool of donors, and accelerate the tax benefit to employees and reduce the number of refunds on assessment, the Act has been changed to require the employer to take donations made by the employer on behalf of an employee into account for employees’ tax purposes. Note that the employer has no option in this – if the employer makes the deduction (to a registered PBO), from the employee’s remunerations then it must take it into account when calculating employees tax. If the donation is in respect of an organisation other than a PBO, no deduction from remuneration may be made.

The Act allows as a deduction for tax purposes of donations not exceeding 10% of the taxable income, but there is an explanatory memorandum that points out that the limit for payroll giving is set at 5% to avoid the possibility of allowing too much as a deduction when calculating employees tax, bearing in mind that:

  • An employer will not know other expenses, that will be allowed as deductions on assessment, thus reducing the income on which the 10% is calculated; and
  • The employee may privately make other allowable deductions that the employer will not be aware of.

Therefore on the payroll the maximum that may be taken as a deduction for employees’ tax purposes is 5% of the remuneration after taking into account all other allowable deductions from remuneration.

If the deduction to the PBO is higher than 5% the balance will be refunded on assessment.

The Fourth Schedule of the Income tax Act states that the donation which must be deducted from remuneration are those “for which the employer will be issued a receipt as contemplated in section 18A(2)9(a)”. That is, a receipt giving all the details set out in the Act, which will not be repeated here. The explanatory memorandum states:

The employer acts as the concentration point for donations through a payroll giving programme. From an audit perspective, rather than having to audit individual deductions claimed, SARS automatic employer/employee data match will take care of that leg of the audit trail. All that will be necessary will be confirm that the total of deductions reflected on the employees’ tax certificates issued by the employee is supported by the 18A receipts issued to the employer.

Accordingly, the employer must ensure that it receives a receipt from the PBO to which donations have been made for the total of those donations.

The Act goes on to provide that an employee’s tax certificate setting out the donations made by the employee for which the employer has received receipts from the PBO’s concerned will be sufficient for SARS to allow the donation as a tax deduction to the employee.

The SARS source code against which to report these donations is Deduction Code 4030 – Donations deducted from the employee’s remuneration and paid by the employer to the Organisation. The total of the actual donation made is to be printed here and not the allowed maximum of 5% of taxable remuneration. This will allow SARS to match the deductions to the 18A certificates received by the employer and will allow the employee to claim the additional 5% of the taxable income that was disallowed for PAYE purposes, on assessment.