Donations in Kind and Section 18A Certificates
Member Query
The Section 18A PBO in this question does amazing work and the need for financial assistance just keeps multiplying.
My query revolves around Section 18A donation certificates. Back in 2019 we were given advice not to issue Section 18A donation certificates for specific services that are donated to us including:
• Consulting fees for legal advice,
• Audit fees for the annual audit and
• Advertising space on radio, digital billboards, magazines (big no to marketing and advertising services – huge part of the budget) etc.
The question came up in a board meeting, why cant these companies be given a Section 18 A but when one of my board members does a presentation/public speaking engagement she is affording the Section 18A donation certificate for her tax return instead of being paid.
Questions:
Why can’t the PBO give Section 18A certificates to these companies?
What services donated warrant a Section 18A and what don’t and those that don’t why not?
Response
Question 1. Why can’t the PBO give Section 18A certificates to these companies?
Understanding Section 18A Donations for Services
In terms of Section 18A of the Income Tax Act, 1962 (Act No. 58 of 1962), a Public Benefit Organisation (PBO) with Section 18A approval may issue tax-deductible certificates only for bona fide donations of cash or property in kind.
Why Can’t Donated Services Qualify for Section 18A?
SARS has consistently maintained that donations of services (e.g., professional time, consulting, marketing, legal or audit services, etc.) do not qualify for Section 18A. The reason behind this is:
Services are not considered "property" – Section 18A allows deductions for monetary donations or property in kind but not for donating a person's time, skills, or expertise.
No actual transfer of ownership occurs—A Section 18A donation must involve transferring ownership of an asset or cash to the PBO. In the case of services, no tangible asset is transferred, making it ineligible.
Avoidance of inflated deductions – If services were eligible, professionals could issue inflated invoices and claim large deductions, creating tax avoidance loopholes.
So Why Can a Board Member Get a Section 18A Certificate for a Speaking Engagement?
This is where it gets tricky. If a board member waives a speaking fee and asks for a Section 18A certificate instead, it must be handled carefully:
If they first invoice the PBO for the service and then donate back the amount received, this could be a valid donation. SARS may accept this if it sees a legitimate transaction (income declared on their tax return and then a donation made).
However, if they simply waive their fee without actual funds transfer, this is effectively a donation of services, which is not eligible.
What About Goods Like Advertising Space?
SARS allows Section 18A certificates for certain donations of "property in kind". The key test is:
If the donated advertising space is a transferable asset (e.g., pre-paid advertising vouchers, physical billboard space, or airtime that the PBO can use at its discretion), it may qualify.
However, if a media company simply provides free advertising as a service, it does not qualify because no physical property is transferred.
Summary – What Qualifies and What Doesn’t?
Final Advice
Your chairperson is correct to request further clarity. If your PBO wants to maximise Section 18A benefits, it’s best to:
1. Only issue donation certificates for monetary donations or property in kind.
2. Ensure services are not mistakenly considered donations.
3. If a donor wants recognition for donated services, consider structuring the donation differently (e.g., invoicing first, then donating back).
4. Consult a tax professional before issuing certificates for complex cases to avoid SARS penalties.
References to the relevant South African tax laws and SARS guidance
1. Income Tax Act, 1962 (Act No. 58 of 1962) – Section 18A
Section 18A(1) of the Income Tax Act specifies that only bona fide cash or property in-kind donations qualify for a tax deduction.
It does not include services, time, or the use of assets.
📌 Reference: Income Tax Act, 1962 (Section 18A)
2. SARS Interpretation Note 112 – Section 18A Donations
SARS explicitly states that donated services (such as professional work, advertising, and consulting) do not qualify for Section 18A because they are not "property" that is transferred.
However, property in kind (such as tangible goods or pre-paid advertising vouchers) can qualify.
📌 Reference: SARS Interpretation Note 112 – Section 18A
3. SARS Tax Exemption Guide for Public Benefit Organisations (2023)
This guide further clarifies that donations must involve a transfer of ownership to the PBO.
The guide also emphasises that services, including professional and consulting work, do not qualify for Section 18A deductions.
📌 Reference: SARS Guide for PBOs
