ABOUT TAX EXEMPTION UNIT FOR NPO’s
WHAT IS TAX EXPEMPTION UNIT
Tax exemption is a preferential tax treatment that is designed to assist non-profit organisations by extending their financial resources.
The preferential tax treatment for non-profit organisations is not for and organisations that meet the requirements set out in the Income Tax Act, 1962, must apply for this exemption. If the exemption application has been approved by SARS, the organisation is registered as a Public Benefit Organisation (PBO) and allocated a unique PBO reference number.
It is important to note that an organisation that has a non-profit motive or is registered as a non-profit organisation (NPO) or Non Profit Company (NPC) does not automatically qualify for preferential tax treatment. An organisation will only enjoy preferential tax treatment after it has applied for and been granted approval as a Public Benefit Organisation (PBO) by the Tax Exemption Unit (TEU).
ABOUT Public Benefit Organisation (PBO)
WHAT IS A PUBLIC BENEFIT ORGANISATION
A PBO is an organisation that meets the requirements prescribed in section 30 of the Income Tax Act and which may apply for approval to the Commissioner of SARS, to enjoy the benefit of certain tax concessions. These are organisation that have been approved after applying and do qualify to acquire a tax exemption treatment. The conditions and requirements for an organisation to be approved as a PBO are contained in the rules governing the preferential tax treatment of PBOs. Some Section provides for the exemption from normal tax of certain receipts and accruals of approved PBOs.
Approved PBOs have the privilege and responsibility of spending public funds, which they derive from donations or grants, in the public interest on a tax-free basis. The donations or grants may be received from the general public or directly or indirectly from the State. It is therefore important to ensure that exempt organisations use their funds responsibly and solely for their stated objectives, without any personal gain being enjoyed by any person including the founders and the fiduciaries.
Approved PBO’s must continue to comply with the Act and related legislation throughout their existence. This includes the submission of annual income tax returns on an IT12EI form. The income tax return enables the Commissioner to assess whether the approved PBO is operating within the prescribed limits of the relevant approval granted and to determine whether the partial taxation principles must be applied to receipts and accruals derived from a trading activity or business undertaking which does not qualify for exemption.
An organisation which provides scholarships, bursaries and awards for study, research or teaching must comply with the conditions prescribed in Regulation R.302 (published in Government Gazette No. 24941 on 28 February 2003).
How to Qualify for a PBO
In order to qualify as a PBO, an organisation must:
- Be a trust, an association or a Section 21 company;
- Pursue only approved public benefit activities (the list of which includes religious activities) on a non-profit basis and primarily within South Africa;
- Be of a "public character";
- Submit to the Commissioner of Revenue a copy of the constitution or other written instrument under which the organisation has been established and which meets the requirements of section 30 of the Income Tax Act.;
- Register as an non-profit organisation (NPO) in terms of the Non-Profit Organisations Act, 1997 (unless the Commissioner of Revenue waives this requirement);
- Comply with any reporting requirements set by the Commissioner of Revenue;
- Not pay "excessive" remuneration to any employee, office bearer or member; and
- Stay within limitations on business activities.
Organisations that are approved as tax-exempt PBOs will also be exempt from most other taxes, including donations tax, transfer and estate duties, stamp duty, and the skills development levy. Note, however, that this does not include property rates.
Tax deductible donations (Section 18A receipts)
The South African Government has recognised that certain organisations are dependent upon the generosity of the public and to encourage that generosity has provided a tax deduction for certain donations made by taxpayers.
The eligibility to issue tax deductible receipts is dependent on section 18A approval granted by the TEU, and is restricted to specific approved organisations which use the donations to fund specific approved Public Benefit Activities.
A taxpayer making a bona fide donation in cash or of property in kind to a section 18A-approved organisation, is entitled to a deduction from taxable income if the donation is supported by the necessary section 18A receipt issued by the organisation or, in certain circumstances, by an employees’ tax certificate reflecting the donations made by the employee. The amount of donations which may qualify for a tax deduction is limited.