Public benefit
Description
Not for profit organisations 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 organisations by augmenting their financial resources.
Differentiating attributes
The preferential tax treatment for not for profit organisations is however not automatic 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 Institution (TEI).
Useful resources
Requirements for setting up
The requirements are set out in section 30(3)(b) of the Income Tax Act, and are summarised as follows:
At least 3 persons who are not connected persons must accept fiduciary responsibility for the organisation.
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No single person is permitted to directly or indirectly control the decision-making powers of the organisation.
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Funds must be used solely for the object for which the organisation is established and no funds may be directly or indirectly distributed to any person, unless this occurs in the course of undertaking an approved PBA.
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On dissolution, the remaining assets must be transferred to a PBO which has been approved under section 30(3); an institution, board or body exempt from income tax under section 10(1)(cA)(i) that has as its sole or principal object the carrying on of any PBA; or the government of the Republic in the national, provincial or local sphere; or the National Finance Housing Corporation, which entities are required to use the assets solely for the purpose of carrying on approved PBAs.
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In case of a branch of foreign organisation, it is required on termination of its activities in the Republic to transfer the assets of such branch to any public benefit organisation, institution, board, body, department or administration if more than 15% of the receipts and accruals attributable to the branch during the period of three years before the termination are derived from a source within the Republic.
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No donation may be accepted that may be revoked by the donor or where conditions are imposed that will entitle the donor or any connected person to obtain a direct or indirect benefit there from, or where there is any misrepresentation with regard to the tax deductibility thereof under section 18A.
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A copy of all amendments to the founding document must be submitted to SARS.
Requirements to ensure on-going compliance
An organisation approved by the Commissioner as a PBO will be required to:
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Submit annual income tax returns via SARS eFiling or manually;
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Submit a copy of all amendments to its founding document to the Commissioner, as soon as they have been affected;
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Inform the Commissioner of any address change for correspondence within 60 days after the address change takes place;
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Inform the Commissioner of any change in persons accepting fiduciary responsibility for the organisation or office bearers (resignations or new appointments);
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Inform the Commissioner if the PBO is no longer carrying on approved PBAs or ceases to exist;
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Retain all books of accounts, records and other documents for a period of 5 years from the date of the submission of the income tax return and if requested by SARS submit copies of such documents;
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Ensure that at all times the PBO complies with the requirements relative to the PBO approval.
Related topics
Requirements for ongoing compliance as a Tax Exempt Institution
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SARS (South African Revenue Service)
09 May 2022
Requirements for setting up a Tax Exempt institution with SARS
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Public benefit
SARS (South African Revenue Service)
09 May 2022