Specialised governance and structuring advice for donors and non-profit organisations
With over twenty years of experience in the sector, we know the importance of effective structuring and good governance in enabling a foundation or organisation to achieve its goals impactfully and sustainably.
Sharing your passion for making a difference in South Africa
Anna Vayanos is an admitted attorney of the High Court of South Africa (non-practising) as well as a solicitor for England and Wales. She is also a registered tax practitioner (Registration number: PR0020342).
Anna practised trust, tax and charity law both in Cape Town and London for a period of ten years. Passionate about making a difference in South Africa, she left legal practice in 2005 to pursue a role that would enable her to work further with donors and the non-profit sector. While in this role, she re-conceptualised and soon headed up the Philanthropy Office at Nedbank Private Wealth (previously BoE Private Clients). The business was recognised as the industry leader in South Africa in the provision of philanthropy services (Business Day, Top Private Banking Survey, August 2012) and remains the largest and most established philanthropy offering with repeated international recognition.
Since 2013, Anna has been consulting independently through her own business, Anna Vayanos Philanthropy Consulting. She remains very active within the donor and NPO sector and is currently a member of the Steering Committee (and previous Chair) of Women in Philanthropy South Africa a network of over 650 people active in the sector. She acts as professional trustee on two grant-making trusts. She also acts in a voluntary capacity as a trustee and was previous Chair of Home from Home Trust, an organisation providing community-based foster care to over 200 children. She has spoken at many conferences, has regularly contributed articles and viewpoints on industry-related topics, and co-wrote Advancing Philanthropy in South Africa with Shelagh Gastrow.
Anna has advised on and set up structures for many listed corporates, family businesses, local and foreign donors and NPOs.
With over twenty years of experience in working with both donors and non-profit organisations, we not only offer the specialised technical expertise needed but also a very real understanding of this very important sector.
Tax and structuring
Advice on the optimal structure for your foundation or NPO.
Set up of structures
Set up of structures for foundations and organisations specifically to meet your needs whilst incorporating the requirements of the various tax approvals (PBO and S18A) and NPO registration.
Impactful and accountable grant-making
Working with both donors and NPOs and having sat on the boards of both NPOs and foundations, we are well-placed to advice on funding policies that are well-thought through, responsible and impactful.
Financial sustainability of NPOs and foundations
Advice on strategies to work towards the financial sustainability of your NPO or foundation. Please note, no investment advice is provided.
Guiding boards of trustees through what it takes to achieve good governance.
Providing a professional trustee service.
Trustee and tax training
Useful and informative training on what it means to be a good trustee and how to ensure compliance with the various legal and tax requirements applicable to your organisation or foundation.
News & Articles
When a foundation makes sense
Guide to the tax consequences of donating directly to non-profit organisations
When a foundation makes sense
By Anna Vayanos
A charitable foundation is a structure through which the funder conducts their giving or corporate social investment (CSI) activities to help ensure focused and sustained giving. It usually takes the form of a trust or a non-profit company (NPC), and involves the donation of capital to the foundation (either at the start or over time) and the investment of this capital or endowment. Proper investment of the capital should produce income to cover part or all of the distributions to beneficiaries or programme costs. In this way, the foundation becomes financially sustainable and able to give independently and into the future.
Why set up a foundation?
• Sustainable CSI
Tough times for funders are usually even tougher times for the beneficiaries that they support. A financially sustainable foundation can continue to give in tough financial times, as amounts available for CSI are no longer dependent on the company’s financial position in any particular year, provided that the foundation has a reasonable endowment.
• Easier quantification of CSI
It is becoming increasingly important to track CSI spend for reporting against the B-BBEE scorecard, for example. CSI efforts and spend can be tracked more easily by channelling all relevant activities through a foundation. Similarly, it also then becomes easier to measure the impact of your company’s CSI.
• Protection of CSI funds
The foundation’s assets will be separate to those of the company’s and thus protected from any of the company’s financial risk.
Directing money generated from fundraising campaigns directly into a separate foundation provides external funders with peace of mind, knowing that their contributions are paid to an entity separate to the company, for a clearly defined purpose.
• Branding and legacy
Managing CSI through a foundation creates a branding opportunity for the business, using the name of the foundation as a related brand to highlight CSI efforts. A foundation separate from the company can also continue to exist even if the company ceases activities in the country or shuts down. The foundation and its brand can then remain as a legacy. An example of this is the well-established Zenex Foundation in South Africa.
• Significant tax saving
A company could benefit from a number of tax advantages whether it gives directly to beneficiaries or through a foundation. However, the added advantage of making use of a foundation that enjoys the necessary approvals is that there should be no income tax or capital gains tax payable on the investment of the funds within the foundation. Funds that would have been paid towards tax can instead be used towards the objectives of the foundation.
• Input from independent trustees
Independent trustees can be appointed to the board of a foundation - and should be carefully selected for their relevant expertise and experience in a business’s CSI focus areas. They can help guide a company’s CSI to ensure the effectiveness of programmes and their involvement can also give these added credibility in beneficiary communities.
Families and individuals
• Determining your vision and committing to giving
The exercise of setting up a foundation involves considering the funder’s values, passions and the areas in which they would like to make a difference. Once there is clarity on these, the foundation should be carefully structured to ensure commitment to the achievement of the funder’s vision for the longer term.
• Sustainable giving
A foundation, funded and invested properly, can ensure that the funder’s giving is financially sustainable and not reliant on the availability of excess personal income. Income earned within the foundation can be distributed to beneficiaries long after any initial donations have been made to the foundation. Not only does this allow the funder to plan their giving but it also allows for longer-term commitments to beneficiaries, which is immensely beneficial to them and their programmes.
• Involvement of the next generation
By including the funder’s children as trustees or in the everyday activities of the foundation, an opportunity is created to keep their family connected and involved. This can also help to ensure that the funder’s vision is understood during their lifetime, which will assist with its continued achievement after their death.
• Leaving a legacy
Many people would like to leave a legacy after their death by using funds made during their lifetime, to continue to make a difference long after they have passed away. Setting up a foundation either while still alive or in terms of the funder’s Will can enable them to do this.
• Significant tax savings, including estate duty savings
The funder could benefit from a number of tax advantages whether they give directly to beneficiaries or through a foundation. However, the added advantage of making use of a foundation that enjoys the necessary approvals is that there should be no income tax or capital gains tax payable on the investment of the funds within the foundation. Funds that would have been paid towards tax can instead be used towards the objectives of the foundation.
When not to establish a foundation
A foundation requires longer-term commitment and sufficient funds to make it practically and financially viable. If a company chooses to spend CSI funding, or an individual chooses to spend excess personal income, within a short time period from when it becomes available, then a foundation would not be appropriate. Giving directly to organisations or beneficiaries would make more sense.
Also, if the amounts available for giving or CSI activities are quite low then the use of a foundation might not be financially viable.
Should a foundation continue for a limited period or into perpetuity?
This is very much a matter of choice. It is usually not viable to set up a foundation for too short a time period but some funders do prefer to set a time limit on the lifespan of their foundation. For an individual funder this could be because they would rather see, and give input on, the impact of their philanthropy during their lifetime. Others specifically want their legacy of giving to continue after death. A foundation can also be structured in such a way so as to terminate once it has fulfilled the particular purpose for which it was established.
How much capital is enough?
A foundation need not be fully funded upfront; its capital base can be built up over time. However, unless the intention is to have at least R1 million of capital ultimately invested within the foundation for the longer term, it is probably not financially viable to set up a foundation due to the ongoing costs involved.
What are the costs involved?
Initial set-up costs of a foundation should be between R15 000 and R20 000 depending on complexity. This includes the registration of a trust or NPC, as well as the various applications for tax exemption (and possible registration as a Non-Profit Organisation, although this is voluntary and more appropriate for foundations fundraising from third parties).
Annual running costs include, as a minimum, fees for:
• the preparation of annual financial statements
• an annual audit or review
• preparation and submission of an income tax return.
Depending on the size and activities of the foundation, there could also be staff and other overhead costs.
There are additional ongoing requirements that need to be complied with in terms of tax approvals and registrations obtained. These are not cost prohibitive and can be outsourced.
First published in the Trialogue Funders Guide to Social Development in South Africa. Edited in September 2020.
Guide to the tax consequences of donating directly to non-profit organisations
By Anna Vayanos
This is a general guide to the tax consequences of giving directly to non-profit organisations and is not intended to be comprehensive. It is important to seek advice applicable to your own circumstances.
If an organisation carries out activities that are for the public benefit, it can obtain certain tax approvals from the South African Revenue Service (SARS), which will enable it to pay no (or less) tax and through which it can offer its donors certain tax advantages.
The main advantages are:
• Public Benefit Organisation (PBO) approval
• Approval in terms of Section 18A of the Income Tax Act (S18A)
These approvals are not automatic and not all organisations or foundations qualify for either or both. A donor would need to find out from a potential beneficiary organisation which approvals it enjoys.
If an organisation has PBO approval, its donors can benefit from a number of tax savings in respect of their donations. Depending on the facts, this could include exemption from donations tax, capital gains tax and estate duty savings.
Section 18A approval
If an organisation has S18A approval, it can offer its donors a level of tax deductibility in addition to the tax savings already mentioned. Broadly speaking, a donor can deduct the total value of donations made in any tax year to S18A-approved organisations up to the value of 10% of the donor’s taxable income in that year. Any surplus can be carried over and claimed as a deduction in the subsequent tax year (again up to the same 10% limit).
This deduction is claimed through the donor’s tax return and the donor must obtain a S18A receipt from the beneficiary organisation.
The table below illustrates some of these potential advantages. Availability of these advantages depends on a number of factors inducing the type of donation and any benefits given in return.
|Which tax approvals does the beneficiary organisation enjoy?|
|It does not have PBO or Section 18A approval.||-||It is an approved PBO without Section 18A approval.||-||It is an approved PBO with Section 18A approval.|
|Donations tax is likely to be payable. No capital gains tax saving (on donations in kind). No estate duty saving (if in terms of a Will). No S18A tax deduction available.||-||No donations tax payable. No capital gains tax payable in respect of donations in kind. Estate duty saving (if in terms of a Will). No S18A tax deduction available.||-||No donations tax. No capital gains tax payable in respect of donations in kind. Estate duty saving (if in terms of a Will). S18A tax deduction available.|
This article was first published in the Trialogue Funder’s Guide to Social Development in South Africa and edited in September 2020
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