Tax Exemption

• What is the Tax Exemption Unit?
• How have changes to the law affected tax exemption?
• Which organisations needed to reapply for exemption?
• Which kind of organisations may apply for exemption?
• What is the procedure for applying for exemption?
• Which supporting documents must be submitted?
• Where must forms and documents be delivered?
• When are donations to PBOs tax-deductible?
• How do you contact the Tax Exemption Unit?
• Procedure for Applying for Exemtion from Income Tax

What is the Tax Exemption Unit?

The Tax Exemption Unit deals with tax exemption. It is a dedicated office established to deal with applications for exemption and with the annual assessment of exempt organisations – the aim being to ensure specialised and uniform treatment, and to prevent abuse.

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How have changes to the law affected tax exemption?

The Taxation Laws Amendment Act 30 of 2000 - as amended by section 78 of Act 19 of 2001, section 63 of Act 30 of 2002 and section 198 of Act 45 of 2003 – introduced new provisions that regulate the tax-exempt status of public-benefit organisations (PBOs) and the tax deductibility of donations to such organisations. Certain types of entities have been clustered together.

Two subparagraphs of Section 10 of the Income Tax Act 58 of 1962 provide for exemption.

Public-benefit organisations

Section 10(1)(cN) introduced the concept of a “public-benefit organisation” that conducts approved “public-benefit activities”. Such organisations must be approved by the Commissioner as having complied with the requirements set out in Section 30 of the Act.

Clubs and associations

Section 10(1)(d)(iii) and (iv) now covers entities that consist of members - such as social and recreational clubs, professional associations, trade unions, publicity associations and chambers of commerce.

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Which organisations needed to reapply for exemption?

Organisations that were previously exempt

The new legislation required that all entities that had previously been exempt from income tax had to re-apply for exemption before 31 December 2004.

Organisations exempt from income tax in terms of the provisions of the repealed paragraphs (cB), (cC), (cD), (cF), (cI), (cJ), (f) and (fA) of Section 10(1) of the Income Tax Act 58 of 1962 would continue to enjoy exemption - provided they re-applied for exemption in terms of Section 30 or 10(1)(d)(iii) or (iv) on or before 31 December 2004.

If an organisation's founding document did not comply with the provisions of Section 30, the application needed to be accompanied by form EI2, a signed written undertaking. The previous exemption would then continue to apply until such time as notified by the Commissioner of the decision in respect of the re-application in terms of the new legislation.

Organisations that were not previously exempt

Entities that had not previously been formally exempted also have to apply for exemption in terms of the new legislation, as they are required to register for income tax. All exempted entities are still required to submit annual income tax returns.

Organisations that have not been formally exempted from income tax may submit a completed application form with the required supporting documentation, together with the signed written undertaking EI2. This involves an undertaking by persons acting in a fiduciary capacity to comply with the provisions of Section 30 of the Income Tax Act.

The Commissioner may approve an exemption with retrospective effect if the application is made before the last day of the first year of assessment of the organisation. He could also approve an exemption with retrospective effect if the application was made before 31 December 2004.

• For more see Tax Exemption Guide for Public Benefit Organisations in South Africa

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Which kind of organisations may apply for exemption?

The public-benefit activities (PBAs) that qualify for tax exemption are listed in the Ninth Schedule to the Income Tax Act 58 of 1962. 

The Ninth Schedule

The concept of a "public-benefit activity", as listed in the Ninth Schedule, includes activities that involve:

• welfare and humanitarianism;
• health care;
• land and housing;
• education and development;
• religion, belief or philosophy;
• culture;
• conservation, the environment and animal welfare;
• research and consumer rights;
• sport;
• the provision of funds, assets or other resources; and
• other services and bids

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What is the procedure for applying for exemption?

To apply for exemption from income tax, donations tax, estate duty, stamp duty and transfer duty - and to apply for approval for donations to be tax deductible under Section 18A of the Income Tax Act - organisations must complete the form EI1, which is also available at local SARS branch offices.

The completed form and the required supporting documentation must be submitted to the Tax Exemption Unit.

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Which supporting documents must be submitted?

The table below indicates the supporting documentation that must be attached and submitted with the form EI1. Note that if the requested information and the supporting documents are not submitted with the form, the application will be returned.

Table of supporting documents

Application in terms of section (refer to Part F of the form EI1)	Type of founding document required	Annual financial statements	Written undertaking EI2
Section 10(1)(cA)(i)	Government Gazette	Yes	n/a
Section 10(1)(cA)(ii)	Memorandum and articles of association	Yes	n/a
Section 10(1)(cM)	Memorandum and articles of association	Yes	n/a
Section 10(1)(cN)	Constitution, trust deed or memorandum and articles of association	Yes	Yes
Section 10(1)(d)(iii)	Constitution, trust deed or memorandum and articles of association	Yes	n/a
Section 10(1)(d)(iv)	Constitution or memorandum and articles of association	Yes	n/a
Section 10(1)(e)(iii)	Constitution or memorandum and articles of association	Yes	n/a
Section 18A	Constitution, trust deed or memorandum and articles of association	Yes	Yes

Form EI2

The written undertaking, form EI2, must be completed, dated and signed by three unconnected persons accepting fiduciary responsibility for the organisation.

If no annual financial statements are available

Recently established organisations that do not yet have annual financial statements must declare this in Part I of form EI1.

However, an income and expenditure statement for the organisation's period in existence must be attached to your application to enable the Tax Exemption Unit to ascertain the source of income and how it will generally be applied.

Scholarship, bursary and research organisations

Organisations established with the principal purpose of providing scholarships, bursaries and awards for study, research and teaching must - in addition to the above-mentioned required supporting documentation for purposes of Section 18A - also complete form EI3.

Schools and other educational institutions

Public and independent schools, higher education institutions, adult basic education and training institutions, and further education and training institutions as contemplated in paragraphs 4(a) to 4(d) in Part G of EI1 must attach a copy of the certificate of registration issued by the relevant education authority.

Educational organisations and churches are encouraged to take advantage of group registration procedures, which make it possible for organisations to submit only one application and one set of consolidated financial statements to the unit on behalf of all their affiliations or branches.

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A “drop box” facility is available at the Tax Exemption Unit's office; all hand deliveries must be deposited in the box. The unit will not, therefore, date-stamp covering letters to acknowledge receipt.

The physical address is:

Pro Equity Court
1250 Pretorius Street
Hatfield
Pretoria

All applications received with the relevant information and required supporting documentation will be issued with a computer-generated acknowledgment of receipt – an EI153(e) or EI153(a) - within four weeks of the date of submission.

Note that the legislation specifically makes provision for a delay between application and approval of an exemption from income tax.

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When are donations to PBOs tax-deductible?

It is widely accepted that the tax deductibility of donations influences donor behaviour. The government has recognised this: to assist PBOs, donations to a limited number of categories of PBOs may be deducted from the taxable income of the donating taxpayer.

A list of the public-benefit activities approved by the Minister of Finance is published in the Ninth Schedule to the Act. Previously this benefit was limited to donations made to secondary and tertiary educational institutions.  A wider range of activities is now included. This list may be extended at the discretion of the Minister.

The Ninth Schedule

The concept of a public-benefit activity, as listed in the Ninth Schedule, includes activities that involve:

• welfare and humanitarianism;
• health care;
• land and housing;
• education and development;
• religion, belief or philosophy;
• culture ;
• conservation, the environment and animal welfare;
• research and consumer rights;
• sport;
• the provision of funds, assets or other resources; and
• other services and bids.

For more see Tax Exemption Guide for Public Benefit Organisations in South Africa

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How do you contact the Tax Exemption Unit?

Physical address:

Pro Equity Court
1250 Pretorius Street
Hatfield
0083

Postal address:

The Head: Tax Exemption Unit
PO Box 11955
Hatfield
0028

Telephone: (012) 422 8800
Fax: (012) 422 8830
e-Mail: teu@sars.gov.za

Important Notice:

The Taxation Laws Amendment Act, 2000, (Act No. 30 of 2000) as amended by section 78 of Act 19 of 2001; and section 63 of Act 30 of 2002 and section 198 of Act 45 of 2003 have introduced new provisions regulating the tax-exempt status of Public Benefit Organisations (PBO) as well as the tax deductibility of donations to such organisations. The provisions of the latest amendment came into operation 22 December 2003.

The list of approved Public Benefit Activities (PBA) for purposes of exemption from income tax and the deductibility of donations are contained in the Ninth Schedule to the Income Tax Act and available on the SARS website.

It must be noted that the legislation specifically makes provision for a delay between application and approval of an exemption from income tax.

Organisations exempt from income tax in terms of the provisions of the repealed paragraphs (cB), (cC), (cD), (cF), (cI), (cJ), (f) and (fA) of section 10(1) of the Income Tax Act, will continue to enjoy exemption, provided they re-apply for exemption in terms of section 30 or 10(1)(d)(iii) or (iv) of the Income Tax Act on or before 31 December 2004.
Where the founding document does not comply with the provisions of section 30, the application must be accompanied by a signed written undertaking EI 2. The previous exemption will then continue to apply until such time as notified by the Commissioner of the decision in respect of the re-application in terms of the new legislation.

Organisations which are currently not formally exempt from income tax, may submit a completed application form with the required supporting documentation, together with the signed written undertaking EI 2, whereby the persons acting in a fiduciary capacity undertake to comply with the provisions of section 30 of the Income Tax Act. The Commissioner may approve an exemption with retrospective effect, if application is made before the last day of the first year of assessment of the organisation or before 31 December 2004, whichever is the later.

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Procedure for Applying for Exemtion from Income Tax

In terms of section 10(1) and / or approval in terms of section 18A of the Income Tax Act No. 58 of 1962

1. Organisations wishing to apply for exemption from income and for approval for donations to be tax deductible in terms of section 18A of the Income Tax Act must complete an application form EI 1. The EI 1 can be downloaded from the SARS website: www.sars.gov.za/Most Popular Links/Public Benefit Organisations / Application Form for Exempt Institutions EI 1.
   
2. The completed form together with the relevant required supporting documentation must be submitted to the Tax Exemption Unit.
   
3. The table below indicates the required supporting documentation that must be attached and submitted together with your application form EI 1. Kindly note that if all requested information and relevant required supporting documentation are not submitted together with the application form EI 1 the application will be returned.

Application in terms of section (refer to Part F of the EI 1)	Type of founding document required	Annual financial statements (AFS)	Written Undertaking EI 2
Section 10(1)(cA)(i)	National/Provincial Government Gazette	v	n/a
Section 10(1)(cA)(ii)	Memorandum and Articles of association	v	n/a
Section 10(1)(cM)	Memorandum and Articles of association	v	n/a
Section 10(1)(cN)	Constitution or Trust deed or Memorandum and Articles of association	v	v
Section 10(1)(d)(iii)	Constitution or Trust deed or Memorandum and Articles of association	v	n/a
Section 10(1)(d)(iv)	Constitution or Memorandum and Articles of association	v	n/a
Section 10(1)(e)(iii)	Constitution or Memorandum and Articles of association	v	n/a
Section 18A	Constitution or Trust deed or Memorandum and Articles of association	v	v

Important Notice:

The written undertaking form EI 2 must be completed, duly dated and signed by three (3) unconnected persons accepting fiduciary responsibility for the organisation.

Recently established organisations which have no Annual Financial Statements (AFS) available must make a declaration to that effect on Part I of the application for exemption from income tax form EI 1.  An income and expenditure statement for the relevant period in existence must however be attached to your application to enable the Tax Exemption Unit to ascertain the source of funds and how the income will generally be applied.

Organisations established with the principal purpose of providing scholarships, bursaries and awards for study, research and teaching, must in addition to the above-mentioned required supporting documentation for section 18A purposes also complete an EI 3 Written Undertaking.
Public and independent (private) schools, higher education institutions, adult basic education and training (ABET) institutions, further education and training (FET) institutions as contemplated in paragraphs 4(a) to 4(d) in Part G of the

EI 1 must attach a copy of the relevant certificate of registration issued by the relevant Education Authority.

Educational organisations as described above as well as churches are encouraged to take advantage of Group Registration procedures which make it possible for the organisations to submit only one application and one set of consolidated financial statements to Tax Exemption Unit on behalf of all their affiliations or branches.

1. A “Drop Box” facility is available at the TEU office and all hand deliveries must be deposited in the “Drop Box” provided. No date stamping of covering letters to acknowledge receipt will therefore be provided by the TEU.
   
2. All applications received by the TEU with the relevant information and required supporting documentation will be issued with a computer generated acknowledgment of receipt (EI 153 (e) or EI 153(a)) within 4 weeks from date of submission.

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