Following the publication on 29 March 2020 of the explanatory notes on the proposed COVID-19 tax relief, National Treasury expanded the relief with publication of the draft bills.
On 1 April 2020, National Treasury published the draft Disaster Management Tax Relief Bill, the Explanatory Memorandum thereto and the draft Disaster Management Tax relief Administration Bill.
In terms of the initial proposal, the explanatory notes only made provision for relief in terms of the Employment Tax Incentive and the deferral of PAYE and provisional tax liabilities for qualifying businesses.
In our analysis of the initial relief proposed, it was noted that it would be prudent for National Treasury to expand the proposed fiscal package by allowing for the deduction of donations to disaster funds, as this would have a compounded benefit.
Pursuant to publication of the draft Bill, we are pleased that National Treasury now took this step. In addition to the relief initially provided, it has now been expanded so that disaster relief funds are deemed to be public benefit organisations.
The upshot is that, during the four month period, the following additional exemptions will apply:
- Receipts and accruals of COVID-19 disaster relief fund will be exempt from income tax;
- Donations made to or by the COVID-19 disaster relief funds will be exempt from donations tax; and
- Donations made to a COVID-19 disaster relief funds will qualify for tax deduction in the hands of the donor, subject to the limitation under section 18A of the Income Tax Act No. 58 of 1962.
This is a welcome expansion to the relief already provided, as it will ultimately encourage further contributions to the disaster relief funds.