As government funding for South Africa’s public schools seemingly takes a backseat, many schools are increasingly relying on donations from individuals and companies. In some instances, these donors can benefit from tax relief under section 18A of the Income Tax Act.
In his State of the Nation Address (Sona) on 8 February, President Cyril Ramaphosa claimed many successes in South Africa’s education landscape. He said basic education outcomes were on the rise, with the latest matric pass rate hitting a record high at 82.9%. Learners from no-fee schools were claiming an increasing share of Bachelor’s passes annually, while dropout rates were declining. Notably, he said, funding for financially disadvantaged students in universities and TVET (technical and vocational education and training) institutions have seen significant boosts over the past five years.
But no mention was made of the challenges that continue to plague the schooling sector – overcrowding, dilapidated infrastructure, and unsafe learning environments – or what the government was planning to do about it.
Education advocacy group Equal Education said for the past four years, basic education has been paid lip service in previous Sonas.
“In that first Sona in 2018, the president also promised that the “government will continue to invest in expanding access to quality basic education and improving the outcomes of our public schools”. But since 2019/20, Ramaphosa’s government has managed to improve spending on basic education by a measly 0.43% in real terms (when inflation is taken into account),” Equal Education said in a media statement.
The advocacy group added that if the increasing cost of providing education services and increasing learner enrolment were considered, “this means that this government has actively deprioritised schooling”.
Tax incentive
The South African Revenue Service (SARS) offers a beneficial tax incentive under section 18A of the Income Tax Act, encouraging individuals and corporations to support educational institutions through donations.
According to Danielle Luwes, tax director at Hobbs Sinclair, this provision not only aids in the advancement of education but also allows donors to claim significant tax rebates, beyond what regular fees and government subsidies can cover.
“It not only incentivises philanthropic contributions towards educational development but also reflects the country’s commitment to fostering a culture of community support and social responsibility,” says Luwes.
Understanding section 18A donations
Luwes explains that section 18A donations are a strategic way to support eligible schools and Public Benefit Organisations (PBOs) while receiving a tax deduction.
“It’s crucial to ensure the institution is approved by SARS as a section 18A entity,” she says.
Donations are deductible from taxable income, capped at 10% of the taxpayer’s income before other deductions.
“This means that if a taxpayer’s income before deductions is R1 million, they can claim up to R100 000 as a deduction for their donation.”
Excess amounts beyond this 10% cap can be carried forward to subsequent years, offering flexibility for larger donations.
Eligibility and impact of donations
When making a donation, obtaining a section 18A tax certificate from the school is essential for claiming the deduction.
Luwes emphasises the positive impact of these donations.
“Contributions under section 18A greatly assist in enhancing educational facilities and opportunities, beyond what regular fees can cover. It’s a meaningful way to support education and receive tax benefits,” she adds.
Ensuring compliance
Luwes advises donors to be vigilant and well informed.
“It’s crucial for both donors and schools to understand the legal distinctions and comply with SARS regulations. Engaging with a tax professional for guidance is always advisable,” she recommends.
She points out there’s a common misconception about section 18A.
“It’s often misunderstood that regular school fees qualify as donations for tax benefits. It is important to differentiate these fees from eligible donations under section 18A. Misclassifying school fees as donations can result in penalties from SARS,” explains Luwes.
