Donations and VAT: What you need to know
by Michaela Peterson, FSP Business, 02 June 2015
When it comes to donations, you can't claim Vat back on all donations you make. Nevertheless, there are specific instances when you can claim input tax back on a donation you make.
Below, we'll show you the conditions for donations and the definition for associations not for gain, in relation to VAT.
Keep in mind that a donation is subject to 14% Vat
If you receive a donation (consideration), you must declare output tax (at 14% or sometimes 0%) on it.
Also, the term consideration excludes donations you make to associations not for gain. This means the association receiving the donation doesn't declare output tax on it. And, you can't claim input tax on it.
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So what does SARS mean when it uses the term donation?
A donation refers to a payment (money or otherwise) you voluntarily make to any association not for gain. This association uses this payment to carry out the purposes of the association. The payment doesn't give rise to any identifiable, direct or valuable benefit for the donor or any person connected to the donor.
And this means you can't gain any benefit (whether, identifiable, valuable or direct) from your donation.
A donation is either subject to Vat at 14% or not subject to Vat at all.
Keep in mind that associations not for gain include welfare organisations
Note: If any other type of enterprise receives donations or sponsorships, (i.e. a normal, profit making entity) they will have to account for the output tax. Vat will be deemed to be included into the amount of the donation.
Caution: Many donations have conditions. For example, if you donate money to a children's' home and you specify they must use the money to buy jerseys for the children , it isn't affected by Vat.
How to deal with Vat on donations you give to a Vat registered association not for gain
A gift to an association not for gain is only a donation if the donor doesn't receive any identifiable direct, valuable benefit in the form of the supply of goods or services. In both cases, this is treated differently
Vat implications for donations if the donor doesn't receive any direct benefit:
• You merely make the donation, and don't get anything in return for it – whether advertising, recognition, etc., the basic principles of a donation apply; and
• The Association not for gain doesn't account for output tax on that donation it receives.
Vat implications for donations where the donor receives a benefit – whether direct or indirect
• If the donor receives some benefit, e.g. Advertising, the donation include Vat;
• The association must calculate the Vat by applying 14/114 to the amount it receives and pay this over to SARS;
• The association must issue a tax invoice to the donor; and
• But, the donor can get an input tax deduction by applying 14/114 to the amount donated
Do you know what type of donated goods are Vat exempt?
by FSP Business, 18 September 2013
Whenever you import goods, you have to pay Vat to Customs - sometimes this is called 'Customs Vat'. This is also applicable when you personally order something over the Internet from an overseas supplier. But, there are some exceptions. One, in particular, is the importing of donated goods, which is exempt from Vat. Read on to find out which donated goods qualify for exemption.
That's right the Vat Act exempts certain donated goods that are coming to South Africa.
Here's which donated goods qualify for exemption
To qualify for exemption, donated goods must be given to and received by:
A public authority;
A municipality; or
An Association not for Gain (nonprofits)
Keep in mind that SARS will only allow the exemption if it's satisfied the donated goods will be used by the Association not for Gain exclusively for:
Educational, religious or welfare purposes;
The furtherance of the association's objectives to provide educational, medical or welfare services, medical or scientific research; or issue to or treatment of poor or needy persons.
Another qualification is that the recipient of the donated goods must undertake that:
The goods are for the exclusive use of the organisation;
The goods will be distributed freely by the organisation;
The goods won't be sold, leased, hired or otherwise disposed of for gain; and
No consideration or other counter-performance will be accepted for the goods by any person.
The goods will be exempt if they're unsolicited.
As long as you don't stir the donors up, ask them earnestly, petition or beg them, the donation of the goods is considered to be unsolicited.
The goods must be forwarded free of charge. In other words, they must be a gift.
A word of caution: As wonderful as monetary gifts may be, for Vat purposes money isn't 'goods'.
Sometimes a nonresident donates money and the recipient organisation then uses it to buy something it needs. Unfortunately, that purchase of the needed goods is subject to Vat at the applicable (mostly standard) rate.
Only goods forwarded free of charge qualify for the exemption.
Who must send the donated goods to qualify for the exemption?
The person forwarding the goods must be a nonresident.
The Vat Act doesn't define a non-resident or resident. But, applying the everyday use of the term 'nonresident,' the donor must be someone who doesn't live permanently in South Africa.
Another good indicator of their resident status is whether or not they're registered as a South African taxpayer.
How do I apply for the Vat exemption on imported donated goods?
There's no prescribed application form for this exemption. You'll simply apply by sending a letter to SARS.