Tax Exempt Institutions and Other Tax Products

Income Tax Exempt entities may be required to register for additional Tax Products. Each of these Tax Products is briefly outlined below; however, it is essential that Income Tax Exempt entities ensure they are thoroughly familiar with the relevant Tax Products.

Employees Tax (Pay As You Earn)

Income Tax Exempt entities have an obligation to register as employers with SARS if their employees (permanent, part-time, temporary or casual) are liable for personal income tax. To determine whether employees are liable for personal income tax, the Income Tax Exempt entity, as the employer, must determine whether the amounts paid to employees are within the personal income tax threshold. The cash salary and benefits in kind (if applicable) are used to determine the personal income tax liability of the employees of the Income Tax Exempt entity. The tax threshold amount is available here.

Fringe benefits and allowances paid to employees may have a personal income tax liability for the employee of the Income Tax Exempt entity. The Guide for Employers in Respect of Fringe Benefits and the Guide for Employers in Respect of Allowances provides further guidance on these matters.

Income Tax Exempt entities may also be liable to register its employees for Unemployment Insurance Fund (UIF) with the Department of Employment and Labour, and Skills Development Levy (SDL) with the South African Revenue Service (SARS).

The Employment Tax Incentive (ETI) is an incentive aimed at encouraging employers to hire young work seekers. It was implemented with effect from 1 January 2014 and allows the employers to reduce their monthly employees tax liability.

Estate Duty

Estate Duty is a tax charged on the value of a person’s estate when they pass away. It is imposed under the Estate Duty Act 45 of 1955. However, not all assets in an estate are taxed. Some assets are excluded from estate duty, depending on who inherits them.

When estate duty does not apply to certain entities:

• Assets left to approved Public Benefit Organisations (PBOs): If a person leaves money or property to an approved Public Benefit Organisation (PBO) in their will, that donation is not subject to estate duty. This exemption applies only if the organisation is approved by SARS as a PBO.
• Assets left to the State or certain public bodies: Assets left to the State, a provincial government, or certain public institutions created by law are also not subject to estate duty.

Value Added Tax (VAT)

Value Added Tax (VAT) registration is compulsory for a business if 1. the total value of its taxable supplies exceeds R2.3 million in any rolling 12 month period (with effect from 01 April 2026), or 2. it is reasonably expected to exceed R2.3 million in the next 12 months. Registration must be done via SARS eFiling, or by submitting a VAT101 form at a SARS branch, within 21 days of exceeding the VAT threshold.

Some entities may choose to register for VAT even if they do not reach the threshold.  This is allowed if the entity makes taxable supplies below R2.3 million, and if the value of those supplies has exceeded R120 000 in the last 12 months.

An approved PBO may be classified as A Welfare Organisation under the VAT Act. This classification allows the PBO to fall under a special VAT dispensation, even if it does not meet normal VAT registration requirements. Once classified, 1. the organisation may claim input tax, even where it does not charge output VAT, and 2. SARS will issue a separate confirmation letter confirming the VAT welfare organisation status.

PBOs not classified as welfare organisations must still register for VAT if their taxable supplies meet the normal VAT registration thresholds.

Taxable supplies include goods or services that are subject to VAT at the standard rate, or at 0% (zero rated). When determining whether the VAT threshold has been exceeded, certain exempt supplies must be excluded.

Even if a Public Benefit Organisation performs activities that are VAT exempt, those activities do not qualify the organisation as a welfare organisation for VAT purposes. Each activity must be assessed separately.

Transfer Duty

Transfer Duty is a tax paid when someone acquires property. It is calculated on a sliding scale based on the value of the property. The person who acquires the property (the transferee) is usually responsible for paying this tax. Transfer duty applies only if the property transaction is not subject to VAT.

All exemptions from transfer duty are listed in section 9 of the Transfer Duty Act. Certain exemptions specifically apply to Public Benefit Organisations (PBOs) and qualifying institutions, boards or bodies.

A PBO (or qualifying institution, board or body) may be exempt from paying transfer duty only if:

• The whole or substantially the whole of the property is used to carry out one or more public benefit activities (PBAs).

This requirement applies at the time the property is acquired.

The exemption is not automatic and not a blanket exemption. It applies per transaction, not to all property acquisitions by a PBO. Each property acquisition is assessed separately based on its facts.

For every property acquisition where a PBO wants to claim the exemption:

• A declaration must be submitted to SARS.
• Supporting documents do not need to be submitted upfront but must be kept and provided if SARS requests them via eFiling.

Supporting documents may include:

• The SARS letter confirming approval as a PBO.
• An affidavit explaining what activities will take place on the property; and
• Confirmation that the property will be used wholly or mainly for PBAs.

If, after acquiring the property, the PBO no longer uses the whole or substantially the whole of the property for PBAs:

• The transfer duty exemption falls away.
• Transfer duty becomes payable.
• The date on which the property stopped being used for PBAs is treated as the date of acquisition for transfer duty purposes.
• The rate applied is the rate on that deemed date, but
• The value used is the property’s value at the original acquisition date.

PBOs can benefit from transfer duty exemptions, but only where property is genuinely used for public benefit activities. The exemption is conditional, transaction-specific, and can be reversed if the property is later used for non-PBA purposes.

Interpretation Note 22 (Issue 6) provides guidance to public benefit organisations and institutions, boards, or bodies on Transfer duty exemptions.

Capital Gains Tax (CGT)

Capital Gains Tax (CGT) is not a separate tax. It forms part of income tax. A capital gain arises when you dispose of an asset on or after 1 October 2001 and the proceeds are more than the asset’s base cost. The rules for CGT are set out in the Eighth Schedule to the Income Tax Act, 1962. Capital gains are taxed at a lower effective rate than ordinary income. Capital gains and losses that arose before 1 October 2001 are ignored. Not all assets are subject to CGT, and some capital gains and losses are specifically disregarded.

Public Benefit Organisations (PBOs)

PBOs are taxable on certain trading activities effective from 01 April 2006. Thus, PBOs are not fully exempt from CGT. From the first year of assessment starting on or after 1 April 2006, capital gains or losses on assets used in trading or business activities (or mainly used for such purposes) are generally taxable, unless an exclusion applies. Capital gains or losses on assets used in taxable trading or business activities are not disregarded.

Capital gains or losses are disregarded if the disposed asset falls into one of the following categories:

• Non‑trading assets: Assets not used, on or after the valuation date, in any business or trading activity. This includes assets used only for public benefit activities (PBAs).
• Minimal trading assets: Assets used mainly for non‑trading purposes (generally 90% or more, with SARS possibly accepting 85%). Limited trading use is permitted, but it must be minimal and measurable using an appropriate method (e.g. time or floor area).
• Permissible trading assets: Assets mainly used in exempt trading activities carried on by the PBO.

Trading activities may qualify for exemption if they are:

• Related trades: Integral to the PBO’s main object, mainly cost recovery in nature, and not resulting in unfair competition.
• Occasional trades: Infrequent activities carried out mainly with voluntary assistance and without compensation (other than reimbursement of reasonable expenses).

Top tip: Any capital gain or capital loss made on the disposal of an asset used in a trading activity or business undertaking as contemplated in the basic exemption rule will not be disregarded.

Recreational Clubs

The CGT rules for recreational clubs changed from 1 April 2007. Clubs can no longer automatically disregard capital gains and losses.

• Clubs that applied for approval by 31 March 2009 must comply with section 30A from their first year of assessment starting on or after 1 April 2007.
• Clubs that did not apply continued to enjoy full exemption until their last year of assessment ending on or before 30 September 2010.

Approved recreational clubs may elect roll‑over relief, allowing CGT on asset disposals to be deferred if the proceeds are used to acquire a replacement asset. CGT becomes payable when the replacement asset is later disposed of.

This relief does not apply to investment assets such as shares or collective investment scheme interests.

For the interpretation of taxation laws applicable to PBOs and Recreational clubs, you can read Interpretation Note 44 and Binding General Ruling 20 (Income Tax ) –Interpretation of the expression “substantially the whole”.