Did you know that companies cannot claim a Section 18A tax deduction if a donation is used to earn B-BBEE points under the socioeconomic development (SED) element of the BEE scorecard?

Donations to non-profit entities can offer significant benefits in the form of tax relief or broad-based black economic empowerment (B-BBEE) recognition. However, it’s critical for businesses to understand that the same donation cannot be used to claim both a Section 18A tax deduction and BEE points.

This distinction is particularly important for procurement and HR managers, who are often responsible for or involved in BEE compliance planning, supplier development and corporate social investment initiatives. Misunderstanding the rules can lead to compliance risks or missed opportunities for tax or BEE benefits.

In this article, we explore the differences between Section 18A tax certificates and SED contributions, and how corporates can align their donation strategies accordingly for maximum benefit.

What is a Section 18A tax certificate?

A Section 18A tax certificate is issued by qualifying public benefit organisations (PBOs) when they receive donations that meet the criteria outlined in the Income Tax Act. This certificate allows companies (and individuals) to claim the value of the donation – up to a set limit – as a tax deduction, effectively lowering their taxable income.

This tax incentive exists to encourage voluntary support for non-profit organisations engaged in social development. However, these donations must be unconditional, with no direct benefit – such as BEE points – received in return.

What are SED contributions in the B-BBEE context?

Under the B-BBEE or BEE codes of good practice, SED contributions are a measurable element on a company’s BEE scorecard. These contributions are intended to promote sustainable access to the economy for black South Africans, typically through education, training, skills development or enterprise support.

By making qualifying SED contributions, measured entities can earn valuable points toward their overall BEE recognition level.

Although both Section 18A and SED contributions serve the public interest, the benefit to the donor determines which recognition applies. In summary:

A Section 18A donation is entirely charitable with no strings attached: It may be claimed as a tax deduction provided no benefit (such as improved BEE scoring) is expected in return.
A SED contribution for BEE compliance is strategic: It contributes to a measurable outcome for the donor (improved BEE recognition level), and therefore disqualifies the donation from a Section 18A deduction.

Sars’s position on ‘double benefits’

The South African Revenue Service explicitly prohibits what is referred to as “double-dipping” – claiming both a tax deduction and BEE points for the same donation. If a business submits a Section 18A certificate for a donation that is also recognised under its BEE verification, Sars may disallow the deduction and even impose penalties.

To ensure full compliance while achieving your business objectives:

Define the donation purpose upfront: Clarify whether your intent is for BEE scoring or tax relief.
Engage with the recipient organisation: Confirm whether they can issue the appropriate certificate and understand the nature of your contribution.
Maintain clear records: Distinguish donations made for tax purposes from those made for BEE scoring to avoid audit risks.
Stay informed: Monitor updates from Sars and the department of trade, industry & competition.

SERR Synergy offers tailored BEE consulting services to ensure your initiatives are not only compliant with the B-BBEE codes but also strategically aligned with your business goals. Our BEE consultants provide detailed guidance on how to:

Maximise BEE scorecard points through compliant SED initiatives;
Avoid tax pitfalls related to Section 18A;
Engage with approved beneficiaries and properly structure your contributions; and
Navigate different interpretations across BEE verification agencies.

About the author
Denise Coetsee is an assistant B-BBEE manager in Gauteng. She holds a BCom in law, LLB and LLM (corporate law) degrees from the University of Pretoria and is an admitted attorney of the high court with 12 years of legal experience.