Smart giving - Money-wise ways to help others

Many South Africans are generous by nature, helping family, friends, or causes they care about. But how can you give in a way that is both impactful and financially sound?

JustMoney.co.za, a platform that helps South Africans make good money choices, offers tips on how to give wisely, and make your money go further.

Donate to a Public Benefit Organisation (PBO)

Fred Smith wants to donate to a non-profit organisation (NPO) that operates soup kitchens, but is unsure whether he can claim a deduction when he submits his tax return.

Smart-giving tip: Fred can claim a tax deduction of up to 10% of his taxable income by giving to an organisation registered as a PBO.

PBOs are entities registered with the South African Revenue Service (SARS) that don't work for profit and don’t pay tax. These include welfare organisations, health clinics, and religious institutions, for example. They are allowed to issue a tax certificate to a donor in terms of Section 18(a) of the Income Tax Act.

To benefit, you must donate to a qualifying PBO, and give with no strings attached. If your donations exceed 10% of your taxable income, the excess can be carried forward to future tax years.

For example, on a taxable income of R100,000, Fred can potentially deduct R10,000. If he donates R15,000, he can deduct R10,000 now and carry over R5,000.

“Ensure that the PBO has your full name, ID number, phone number, and email address,” advises Sarah Nicholson, JustMoney platform and customer experience manager. “It’s not compulsory to provide your tax number, but this is recommended.  

“Do your homework and donate to a reputable, well-governed organisation that’s registered with the Department of Social Development and SARS, and has the authority to issue a certificate. Check the organisation’s website for an annual report and financial statements that include evidence of projects and impact.”

When you receive your tax certificate from the PBO, ensure that it has the organisation’s PBO registration number, donation date, names and addresses of both parties, and the amount. Keep records of all donations.

Help without tax consequences

Sibusiso Dlamini’s widowed sister Thandeka is struggling, and he wants to help her buy a new car. However, Sibusiso wants to avoid paying donations tax.

Smart-giving tip: Sibusiso can donate up to R100,000 per tax year (from 1 March to the end of February) as a genuine gift to anyone, including a family member or friend, without paying any donations tax.

However, if he donates more than R100,000 in a single tax year, the amount exceeding R100,000 will be subject to donations tax of 20%.

If Sibusiso and his wife can both assist Thandeka, they may each donate R100,000 tax free.

To stay within the rules, Sibusiso must ensure the donation is not linked to services rendered or any form of work, or it may be seen as income and taxed accordingly. It’s important to keep accurate records and to label the transfer clearly, for example as “family support”.

The money is tax free in Thandeka’s hands, but she must declare it in her tax return as a non-taxable amount.

Nicholson highlights a tax rule that recipients should be aware of: if a donor is responsible for donations tax, and fails to pay it on time, the donor and recipient become equally responsible for the tax.

“You certainly don't want to pay tax on a gift, so highlight the potential tax consequences to the donor.”

Open a tax-free savings account (TFSA)

Grandmother Thandi wants to help her 10-year-old granddaughter, Ayanda, start saving, but is unsure what type of account to choose.

Smart-giving tip: Normally, when you earn interest, dividends, or capital gains from an investment, you pay tax on those earnings. However, with a TFSA, all growth is tax-free, so the recipient keeps more of the money earned.

Nicholson cautions that the donor must not exceed the annual contribution limit of R36,000, or lifetime limit of R500,000.

Grandmother Thandi gives Ayanda R36,000 to invest in a TFSA. As the money is a genuine gift, and under the R100,000 annual donations tax exemption, Grandmother Thandi doesn’t have to pay donations tax.

Ayanda’s parents open the TFSA in her name (because minors can’t open accounts themselves) with the R36,000. That amount grows tax-free. If Grandmother Thandi continues to give Ayanda money each year (up to R36,000 annually), she must keep in mind:

• Ayanda’s lifetime TFSA limit of R500,000. The contributions can continue until that cap is reached.
• Grandmother Thandi’s annual donation limit of R100,000. This will avoid her having to pay donations tax.

This way, Grandmother Thandi gives a thoughtful gift that sets Ayanda up for a strong financial future, while remaining tax-efficient.

More smart-giving tips

Nicholson offers the following advice:

• Support a loved one strategically. Set clear expectations, avoid overcommitting, and consider support that empowers, such as helping with school fees, transport to work, or small business start-up costs.
• Consider a monthly debit order. Regular monthly donations, even modest amounts such as R100 or R200, are easier on your budget than a once-off lump sum.
• Look into joining a reputable stokvel. South Africa’s informal saving groups, or stokvels, are a means to help one another cover essentials such as school uniforms, food parcels, and funeral costs. Be sure to choose a well-managed stokvel with transparency and accountability.
• Consider volunteering your time or skills. Professionals such as teachers, accountants, marketers, and lawyers can offer NPOs valuable services. Some employers support staff volunteering during working hours, and donate funds.

“With careful planning, even small contributions can help others, while strengthening your own financial wellbeing,” concludes Nicholson. “Whether through tax-smart donations or structured giving, your money can go further when donated wisely.

“If you’re considering making a substantial donation, it’s advisable to speak with a reputable financial adviser or tax consultant.”

JustMoney.co.za is a trusted voice within the personal finance sector, helping consumers make good money choices. The JustMoney platform offers personalised insights, numerous articles, and a range of financial solutions and tools, including a free credit score check.