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
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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
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
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