Public Benefit Organisations:
All Public Benefit Organisations (PBO’s) engaged in public benefit activities (PBAs) and includes institutions such as religious institutions, day care centres, disaster relief organisations, health clinics, etc.
Qualifying entities, that have been approved as PBOs, may obtain additional approval to issue tax deductible donations to donors. For more information click here.
Section 10(1)(cN) read with Section 30
9th Schedule of the ITA (PBAs)
Section 18A (Tax deductible donations)
What is a Public Benefit Organisation (PBO)?
A PBO is defined in the Act as any organisation which is :
- a non- profit company as defined in section 1 of the Companies Act, or a trust or an association of persons that has been incorporated, formed, or established in the Republic; or
- any branch within the Republic of any company, association or trust incorporated, formed, or established in any country other than the Republic that is exempt from tax on income in that other country;
of which the sole or principal object is carrying on one or more public benefit activities, where-
- all such activities are carried on in a non-profit manner and with an altruistic or philanthropic intent;
- no such activity is intended to promote the economic self-interest of any fiduciary or employee of the organisation directly or indirectly, otherwise than by way of reasonable remuneration payable to that fiduciary or employee; and
- where each such activity carried on by that organisation is for the benefit of, or is widely accessible to the general public at large, including any sector thereof (other than small and exclusive group).
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 – Return of Income Exempt Organisations – External 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).
What is a public benefit activity (PBA)?
A PBA is any activity listed in Part I of the Ninth Schedule and any other activity determined by the Minister of Finance from time to time by notice in the Gazette to be of a benevolent nature, having regard to the needs, interests, and well-being of the general public.
The approved PBAs are grouped into categories each with specific activities that qualify as PBAs. Refer to Part I of the Ninth Schedule to the Income Tax Act for the comprehensive list of approved PBAs
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 TEI 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.
PBO and VAT
An approved PBO may be classified as a welfare organisation under the VAT Act. The classification as a welfare organisation includes the PBO in the VAT dispensation without having to meet the normal registration requirements. Once classified as a welfare organisation under the VAT Act, the PBO will be able to claim input tax even though there was no output tax.
A separate letter confirming that the PBO qualifies as a welfare organisation in terms of the VAT Act will be issued.
PBO’s that are not classified as a welfare organisation may have to register for VAT if they have taxable supplies which meets the VAT registration requirements.
For more information on VAT and PBOs please refer to the VAT414 Guide for Associations not for Gain and Welfare Organisations
FAQs for PBO
FAQ: What are the requirements and conditions that the founding document of an organisation must comply with?
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.
- No single person is permitted to control the decision-making powers of the organisation directly or indirectly.
- 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.
- 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.
- 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.
- 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.
- A copy of all amendments to the founding document must be submitted to SARS.
FAQ: Who must sign the written undertaking?
The written undertaking must be signed by the three persons responsible in a fiduciary capacity of the organisation.
FAQ: May an application for approval be submitted without annual financial statements?
Yes, but only if an organisation has been established or formed during the financial year in which the application for PBO approval is sought.
If the organisation was dormant, an affidavit with bank statements must be submitted with the application form. Organisations that have been in existence for more than 12 months must attach the annual financial statements.
FAQ: What are the requirements that must be complied with by an approved PBO?
An organisation approved by the Commissioner as a PBO will be required to:
- Submit annual income tax returns via SARS eFiling or manually;
- Submit a copy of all amendments to its founding document to the Commissioner, as soon as they have been affected;
- Inform the Commissioner of any address change for correspondence within 21 business days after the address change takes place;
- Inform the Commissioner of any change in persons accepting fiduciary responsibility for the organisation or office bearers (resignations or new appointments);
- Inform the Commissioner if the PBO is no longer carrying on approved PBAs or ceases to exist;
- 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;
- Ensure that at all times the PBO complies with the requirements relative to the PBO approval.