Tax Exempt organisations

Not for Profit Organisations and Tax

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.
 
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 Unit (TEU).

What is a Public Benefit Organisation (PBO)

The conditions and requirements for an organisation 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 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).

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.
 

Submission of IT12EI (Income Tax Return)

Exempt organisations must annually submit an IT12EI income tax return that can be obtained in the following manner:
  • Through eFiling if you are a registered eFiler;
  • By phoning the SARS Contact Centre on 0800 00 7277;
  • By visiting your local SARS Branch; or
  • By calling or visiting the Tax Exemption Unit (TEU) office
Note: Forms that are requested from SARS for manual completion, will be posted to the taxpayer with the minimal information populated together with the tracking barcode. The return for companies must be completed and submitted within 12 months of the financial year end of the exempt organisation, but the returns for trusts or other entities must be completed and submitted annually by the due dates announced by SARS. The IT12EI income tax return can be sent via one of the following ways:
  • Through eFiling if you are a registered eFiler.
  • Depositing in the drop boxes at the SARS branches; or
  • By Post
To help with the completion of the IT12EI return, you can refer to the Quick Guide – How to complete return on income: Exempt Institutions (IT12EI).
 

TEU Service Offering

The TEU is a dedicated office within SARS which deals with all applications by non-profit organisations for approval as PBOs.  In order to prevent malpractice and abuse, the TEU also monitors compliance by PBOs with the requirements for approval. The TEU is also responsible for the assessment function.
The TEU considers applications for exemption from income tax in respect of the following provisions of the Income Tax Act, 1962: -
 
 
10(1)(cN)​ All Public Benefit Organisations (PBO’s) engaged in activities such as crèches, welfare, health and conservation schools​
Section 10(1)(cA)(i)​ Institution, Board, or Body established by or under any law​
Section 10(1)(cA)(ii)​ Any South African company of which all the shares are held by a body exempt in terms of section  10(1)(cA)(i).​
Section 10(1)(cO)​ Recreational Club​
Section 10(1)(d)(iii)​ Fidelity or Indemnity Fund; Trade Union; Chamber of Commerce or Industries (or an Association of such Chambers); Mutual Loan Association; Local Publicity Association.​
Section 10(1)(d)(iv)(bb) Company, society or other association of persons established to promote the common interest of persons, carrying on any particular kind of business, profession or occupation.​
Section 10(1)(e)(i)(cc)​ Association of persons formed for managing the collective interests common to all its members in respect of expenditure applicable to the common immovable property​
Section 18A:​ Approval for tax deductible donations​
 
 
The TEU does NOT consider exemption applications for Individuals, Labour Brokers (IRP30), Co-operatives, Close Corporations, Special Trusts, Body Corporates, Share Block Companies, VAT, PAYE/UIF/SDL, Benefit Funds and Burial Societies. For assistance on any of these, please phone the Contact Centre on 0800 00 7277.
 

Contact details of the Tax Exemption Unit

Physical address:
Land Bank Building
271 Veale Street
Nieuw Muckleneuk
Pretoria
0181
 
Postal address:
PO Box 11955
HATFIELD
0028
 
Telephone: 012 - 483 1700
Fax: 012 - 483 1701
Last Updated: 07/01/2015 10:19 AM     print this page
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 Top FAQs

What is a public benefit organisation (PBO)?
A PBO is an organisation that meets the requirements prescribed in section 30 of the Income Tax Act (the IT Act) and which may apply for approval to the Commissioner of the South African Revenue Service (the Commissioner

What type of organisation can apply for approval as a PBO?
The concept PBO is defined in the IT Act and means any organisation which is: A non-profit company (NPC) as defined in section 1 of the Companies Act, 2008(previously associations not for gain incorporated under section 21 of the Companies Act, 1973).

What are the requirements to qualify for PBO approval?
The qualifying requirements for PBO approval are: The organisation must be established in the Republic as either a NPC, trust, an association of persons or branch of a foreign exempt organisation.

How does SARS confirm PBO approval?
The notification of approval as a PBO is issued by the Tax Exemption Unit (TEU) by way of a letter, which contains a unique reference number allocated to the organisation.

Does a registered non-profit organisation (NPO) or a NPC automatically qualify for PBO approval?
No, a NPO registered under the Nonprofit Organisations Act, 1997 with the Department of Social Development or a NPC as defined in section 1 of the Companies Act 2008, do not automatically qualify for PBO approval.