Part 2/3 – Fundraising events – are there tax implications? Section 18A
Most nonprofits host fundraising events from time to time, from simple cake sales through to elaborate golf days. However, they may not have considered possible VAT, Section 18A and other income tax implications.
PBO’s that also enjoy Section 18A status may be tempted to offer, or issue, Section 18A receipts to those who pay to attend or sponsor a fundraising event or who donate or purchase items for auction or sale; however, this is not allowed.
Please note that:
– A Section 18A receipt can only be given for a bona-fide gratuitous donation for which the giver (or any related party) receives no value at all in return and where the donation (cash or goods) will be used only for carrying out approved public benefit activities.
– No Section 18A receipts can be issued if any level of value is enjoyed as a result of the payment or “donation” (even if the value received is far less than the value given). By way of example, sponsors receive marketing in return for their sponsorship and attendees enjoy the event that they attend. The alternative to issuing a Section 18A receipt for sponsorships is for the PBO to invoice the sponsor for the amount received as they may then be able to claim the amount as a tax deductible marketing expense. However, if the PBO is a VAT vendor, the sponsorship amount must include VAT.
– No section 18A receipt can be issued either for goods received for auctioning or sale by the PBO for fundraising purposes or for the amount paid for items or services bought at an auction sale.
– No Section 18A receipts should ever be issued for tickets, sponsorships, auction items (received and sold) or for any type of free or discounted services.
We refer you to page 4 of SARS’ “Basic Guide to Tax-Deductible Donations (Issue 2) which lists clearly the payments and transfers that do not qualify for a deduction under Section 18A.
If you have questions around the issuing of Section 18A receipts, please do contact us for a consultation.