Tax Exempt Institutions Connect Issue 2 (January 2023)

Section 18A Draft Notice – Additional Information

On 18 November 2022, the South African Revenue Service (SARS) issued the draft notice in terms of section 18A(2)(a)(vii) of the Income Tax Act, 1962 (“the Act”), listing further information that must be included on a receipt issued in terms of Section 18A(2)(a) of the Act.

The public notice was published on the SARS website, Draft Notice in terms of Section 18A, which prescribes the additional information to be included in the Section 18A receipts issued by approved Section 18A institutions to donors. The explanatory note can be accessed here. This information is in addition to the existing basic information listed in the section 18A(2) , and page 19 of the Basic Guide to Section 18A Approval.

The additional information requirements will be applicable to all approved Section 18A institutions with effect from 1 March 2023, requiring such institutions to issue receipts with the additional information, and keep all the required information available for SARS.

In addition to this, SARS will also issue the Business Requirement Specification (BRS) for the IT3(d) project  in January 2023. The aim of the IT3(d) project is the proposed automation of the submission of the Section 18A tax deductible donations receipts and information to SARS, as part of SARS’ third party data providers. This project is in support of SARS’ Strategic Objectives of making it easy and simple for taxpayers to comply and working with and through stakeholders to improve the tax ecosystem. The benefits of the submission of the Section 18A information to SARS are that it will enable the pre-population of donation information on the income tax returns of taxpayers (make it easy), and assist in curbing the fraudulent use of Section 18A entities Public Benefit Organisation (PBO) numbers (make non-compliance hard) to claim undue deductions.

Should Section 18A institutions like to participate in the pilot of the IT3(d) project, they are welcome to send an e-mail to [email protected]

The Tax Obligation of Public Institutions

Public Institutions are institutions, boards, or bodies established in terms of South African legislation and are partially or fully funded through public resources. This however excludes National, Provincial and Local Government.

Public Institutions include, amongst others:

  • Public institutions per the PFMA
  • Public TVET Colleges as defined in the Further Education and Training Colleges Act (Technical Vocational Education Training (TVET) colleges)
  • Universities as defined in the Higher Education Act;
  • Public Schools as defined in Chapter 3 of the South African Schools Act

Any department of government approved by the Commissioner for purposes of Section 18A may issue a Section 18A receipt for any donation, only to the extent that it will be used solely in carrying on any Public Benefit Activities (PBAs) in Part II.

Section 10(1)(cA)(i) of the Income Tax Act, 1962 ( the Act) provides an exemption from normal tax of –

  • receipts and accruals of any institution, board , or body (other than a company as defined in the Companies Act, any co-operative, closed corporation, trust, water service provider);
  • institutions, boards, or bodies established by, or under any law and which, in the furtherance of its sole or principal object-
  • conducts scientific, technical, or industrial research;
  • provides necessary or useful commodities, amenities, or services to the State (includes any provincial administration), or members of the general public; or
  • carries on activities (including the rendering of financial assistance by way of loans or otherwise) designated to promote commerce, industry or agriculture or any branch of an institution, board, or body.

Although Public Institutions are exempt from Income Tax, they still have the following tax obligations:

  • To register as a taxpayer;
  • To file annual income tax returns;
  • To register as an employer if they have employees earning above the tax threshold; and
  • To register for VAT (subject to complying with the VAT registration requirements).

To read more on tax exemption for Public Institutions, please see the Guide for Public Institutions

Tax Obligations of Home Owners Associations (HOAs)

A Home Owners Association (HOA) is an association of persons formed for managing the collective interests common to all its members, regarding the expenditure applicable to the common immovable property.

Although HOAs are partially exempt from Income Tax, they still have the following tax obligations:

  • To register as a taxpayer;
  • To file annual income tax returns;
  • To register as an employer if they have employees earning above the tax threshold; and
  • To register for VAT (subject to complying with the VAT registration requirements).

To read more on tax exemption for Associations of Persons Managing the collective interests common to all members (e.g. HOAs, complexes or gated communities or tenants of a shopping centre or mall), please see the Interpretation Note 64

FATF Recommendation 8: NPO Sector

During the past year, a number of engagements have taken place between various Government Departments and with the Non-Profit Organisations (NPO) Sector on how to address the deficiencies found by the Financial Action Task Force (FATF). On 18 October 2022, the first Sectoral Risk Assessment meeting took place between Government and the NPO Sector. The meeting was facilitated by the EU Global Facility on Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT). On 08 and 09 December 2022, a two day workshop was held between Government and the NPO Sector to continue the discussions that took place on 18 October 2022.

In addition to these engagements, the following Bills have been passed by Parliament in support of ensuring South Africa meets the FATF Recommendations:

  • The General Laws (Anti-money laundering and Combatting Terrorism Financing ) Amendment Bill has been published. The Amendment Bill seeks to strengthen the country’s Anti-Money Laundering and Combating of the Financing of Terrorism (AML/CFT) laws, and makes significant changes to many relevant laws related to fighting against financial crimes. The Bill can be accessed here.
  • The proposed amendment of five pieces of legislation, which are administered by different Ministers, seeks to fully satisfy the technical compliance deficiencies (deficiencies relating to the adequacy of laws and legal frameworks related to the 40 FATF Recommendations) that were identified in the Mutual Evaluation Report

Should your organisation wish to get involved in the NPO Sectoral Risk Assessment process, please send an e-mail to [email protected]

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