While the Socio-Economic Development (“SED”) element only counts for a maximum of 5 points on the Scorecard in the generic Codes of Good Practice published in terms of the Broad-Based Black Economic Empowerment (“BBBEE“) Act, this element is not as simple to implement as it appears. Any corporate donor making a donation or other SED will need to ensure that both the contribution made, and the recipient qualify for such points. In addition, the donor would preferably like to ensure that the recipient or beneficiary qualifies as a “public benefit organisation with section 18A status” for tax purposes. This will ensure that the donor can:
- claim as many SED points as possible for BBBEE reasons; and
- obtain a section 18A tax deductible receipt for its donation for tax reasons.
An entity may obtain a maximum of 5 SED points for spending a maximum of 1% of its net after tax profit on SED contributions. It will achieve less points if it spends less as points are awarded proportionate to the % of the target achieved.
To claim the points, the measured entity must ensure that, in respect of the monetary or non-monetary contributions made by it:
- at least 75% of the “value” directly benefits black people – as per wording in Statement 500;
- the objective of the contributions is to facilitate “income-generating activities for targeted beneficiaries” – as per wording in Statement 500;
- the objective of the contribution is to promote sustainable access to the economy for the beneficiaries – as per wording in the definition section;
- the beneficiaries must be communities, natural persons or groups of people where at least 75% of the beneficiaries are black people – as per wording in the definition section;
- the contributions qualify in terms of the matrix in Statement 500 – this includes direct donations (monetary or in kind), rendering professional services at reduced or no cost and giving discounts.
- Therefore, the recipient will need to provide proof that:
- at least 75% of its beneficiaries (by number) are black people; AND
- at least 75% of the value of benefits distributed in its last financial year (by value) directly benefitted black people; AND
- the donations will be used to directly promote sustainable access to the economy or income-generating activities for the beneficiaries.
This last requirement is very confusing as the list of types of SED activities that are given as examples in the Codes include things like (support of arts, cultural or sporting development programmes” and “support of healthcare and HIV/Aids programmes.” HIV/Aids programmes are not usually focussed on obtaining employment for these people but rather in assisting their healthcare. However, given that such an example is included, the Codes must be read in a manner that makes sense. My view is that it is clear that assisting a person to become healthier will assist them in re-joining the employable community and becoming productive. This will assist in providing such person with sustainable access to the economy.
The recipient will therefore need to ensure that the donations are used directly towards furthering its objects which must promote sustainable access to the economy or income-generating activities for the beneficiaries
There is no requirement for an independent person to verify this however it is understandable that many donors may request verification of such assertions. Donations that are used for marketing and administrative purposes will not “directly” benefit black people so these are unlikely to qualify.
In order for the donor to claim the contributions as a tax deduction, it will need a section 18A receipt setting out: 1) the recipient’s PBO reference number; 2) the date of the receipt of the donation; 3) the PBO’s name and an address to which enquiries may be directed in connection therewith; 4) the name and address of the donor; 5) the amount of the donation or the nature of the donation (if not made in cash); 6) a certification to the effect that the receipt is issued for the purposes of section 18A of the Income Tax Act, 1962, and that the donation has been or will be used exclusively for the object of the PBO in carrying on the relevant public benefit activity.
Therefore, the donations that are used for activities that do not directly promote and further the PBO objective cannot qualify for a section 18A receipt.
For more information on these and other BBBEE issues, please contact Erika Holmes, head of BBBEE at Shepstone & Wylie attorneys, on 031 575 7410 / 0824538818 or email@example.com