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Donations and VAT: What you need to know

by , 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

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