Is tithing tax deductible?

The question of tax and tithing recently came up and the answer is likely to interest many readers.

Peter O’Halloran - Tax advice

According to Section 18A of the Income Tax Act, a tax deduction is allowed for a donation to a public benefit organisation (PBO) that meets certain criteria, as long as the donation is limited to 10% of the taxable income, excluding certain types of income per Section 18A(1)(c)(B).

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A PBO, as defined in Section 30, must be a non-profit company under the Company’s Act, a trust or an association of persons. Its main aim must be the carrying out of one or more public benefit activities, where the activities are undertaken with philanthropic or altruistic intent and do not benefit (directly or indirectly) the financial self-interest or any fiduciary (director or trustee) or employee, otherwise than by the provision of reasonable remuneration.

Moreover, the activities have to be for the benefit of the public at large or be widely accessible, and not for the benefit of small or exclusive groups.If the church or religious organisation is registered as a PBO and it then undertakes any or a combination of activities mentioned in Part II of the 9th Schedule, the donation will be deductible under Section 18A.

Bear in mind, though, religious organisations can also be registered as PBOs if their activities meet the requirements of Part I of the 9th Schedule. In this case, donations to the PBO will not be tax-deductible – unless the activity the tithe is earmarked for is one covered by Part II. The effect of registering as a PBO under Part I of the 9th Schedule is to ensure that the income-earning activities of the PBO are mainly tax-free.

The details of the requirements of Part I need not concern us here. The point is that tithing can be tax-deductible as long as the tithes are utilised for activities listed in Part II of the 9th Schedule. These can include welfare and humanitarian relief, such as taking care of indigent elderly people, providing health care for the needy, providing education and training for the unemployed, and so on.

Because the maximum amount allowable is 10% of one’s taxable income, tithes might not be deductible in full. But as long as the PBO keeps records of the assistance given, the activities involved and the cost as a ratio of total income, members who wish to obtain their tax deductions might, on request, be issued with the necessary receipt.

A final note on registering a church as a PBO for tax benefits: even if the church does not undertake Part II 9th Schedule activities, the donations it receives are in any event tax-free (as opposed to deductible), because a donation is always capital and capital is tax-free.

This article was originally published on 26 November 2010 in Farmer’s weekly.