heArt at Work
Is both a NPO & PBO
(NPO 116-645 & PBO 930041426)
- Not for Profit Organizations and Tax
Not for profit organizations play a significant role in society as they take a shared responsibility with Government for the social and development needs of the country. Preferential tax treatment is designed to assist non-profit organizations by augmenting their financial resources.
The preferential tax treatment for not for profit organizations is however not automatic and organizations 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 organization is registered as a Public Benefit Organisation (PBO) and allocated a unique PBO reference number.
It is important to note that an organization that has a non-profit motive or is registered as a non-profit organization (NPO) or Non Profit Company (NPC) does not automatically qualify for preferential tax treatment. An organization 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).
- What is a Public Benefit Organisation (PBO)
The conditions and requirements for an organization to be approved as a PBO are contained in section 30 while the rules governing the preferential tax treatment of PBOs are contained in section 10(1)(cN). Section 10(1)(cN) provides for the exemption from normal tax of certain receipts and accruals of approved PBOs. Certain receipts and accruals from trading or business activities will nevertheless be taxable.
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 organizations 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 organization 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).
- Tax deductible donations (Section 18A receipts)
The South African Government has recognized that certain organizations 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 organizations 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 organization, is entitled to a deduction from taxable income if the donation is supported by the necessary section 18A receipt issued by the organization 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.