[Question] Donations and tax

[betst07]

Good day to all the wonderful and helpful people out there.

The company I'm working for regularly donates eggs to non-profit organizations and registered Section 21 companies (schools for disabled, old age homes, soup kitchens etc). We have letters from them on a letterhead with their registration number displayed and they sign receipt for everything received. We have monthly stock-taking and use the total donations to see if it balances - which it does. Internal control measures are in place and very strict. However no donations total is captured on pastel. We produce the eggs ourselves.

Can we use those donations to lessen our tax liability at year end?
Is there a limit to the amount as I'm talking about hundreds of dozens of eggs per month?
What are the regulations and what must we do so that our accountant won't find fault with it?

[Dave A]

If you assign a value to the donated eggs, you'll have to reflect that value as income and expense that value under donations - from an income tax point of view this would look to be a zero sum game.

Where this gets interesting is whether the way you're doing things at the moment meets financial reporting standards...
And are eggs zero rated for VAT?

[betst07]

Hi Dave.

Yes, eggs are zero rated for VAT and are indicated as such on our VAT return.

A monthly calculation is done to see if the opening stock plus stock received minus sales minus donations are equal to the stock on hand. There is usually a very small difference (less than 0.5%) due to breakages. The monthly closing stock figure (cost prize value) is then entered into Pastel.

I see what you mean by the zero sum game.

[Dave A]

Hi Dave.

Yes, eggs are zero rated for VAT and are indicated as such on our VAT return.

For anyone else that comes across this thread in the future and find themselves in similar circumstances except with a different product, the concern would be that SARS might come looking for their output VAT on the donated goods.