Tax Exempt Institutions Connect Issue 3 (September 2023)

Requirement to Submit Section 18A data to SARS – Third Party Data IT3(d)

The South African Revenue Service (SARS) provided approved Section 18A institutions with the requirement to, in future, submit third-party data as relates to Section 18A receipts issued to donors. The Business Requirement Specification (BRS), which includes information on the submission channels, was also published on the TEI webpage and the Third-Party Data webpage on 09 February 2023 for external comments and input.

The TEI Segment has been onboarding early adopters of the IT3(d) project since March 2023 in preparation for Trade Testing, which is scheduled to take place from 14 August 2023 to 08 September 2023. Early adopters will be submitting their Section 18A data to SARS from 18 September 2023. Early adopters will make use of S18A receipts data relating to the 2022/2023 and 2023/2024 years of assessment data for the trade testing and subsequent submissions.

According to the Public Notice 3631 published in Government Gazette No. 48867 on 30 June 2023, all approved Section 18A institutions will be required to submit IT3(d) data with effect from May 2024 for the 2023/2024 year of assessment (i.e., S18A receipts data from 01 March 2023 to 28 February 2024).

Approved Section 18A institutions that would like to participate as early adopters in preparation for the May 2024 implementation date are required to send an e-mail to [email protected]. Organisations are also welcome to visit the TEI and the Third-Party Data webpages for more information.

Exempt Institutions and Submission of Annual Returns (IT12EI)

All Exempt institutions MUST annually submit an IT12EI – Return of Income Tax Exempt Organisations – External Form income tax return.

The income tax return enables the Commissioner to determine:

  • The tax liability of a partially exempt Tax Exempt Institution (EI); and
  • Whether the approved EI is operating within the prescribed legal parameters of the relevant approval granted.

The following fields are required when completing the IT12EI:

  • Particulars of organisation
  • General Financial Information (even if there is no income tax liability)
  • Information in Respect of Trading Activities (if applicable)
  • Taxable Income / Loss (if applicable)
  • Tax Deductible Receipts Issued in Respect of Donations (Section 18A) (for approved Section 18A tax exempt institutions)
  • Additional Information.

If your approved Tax Exempt Institution was dormant for the year of assessment, please indicate “Y” under the “Additional Information” section of the IT12EI. Tax Exempt Institutions are also required to indicate if the dormant organisation has any assets or reserves.

The return for companies or other entities must be completed and submitted within 12 months of the financial year end of the exempt institution. Returns for trusts must be completed and submitted annually by the due dates announced by the Commissioner as set out in the annual notice issued.

NOTE: SARS reserves the rights to audit all IT12EI returns submitted by approved Tax Exempt Institutions, whether active or dormant.

NOTE: Returns must be submitted regardless of the exempt status, and even if there is no tax liability. NO NIL returns may be submitted unless it is supported by the necessary documents to show that there has been no economic activity, such as your bank statements.

Helpful Hints:

  1. Organisations that have applied for income tax exemption but have not received an outcome should file a normal tax return dependent on their legal entity type, e.g., ITR14 (NPC and Voluntary Association) or IT12TR (Trusts).
  2. Approved tax-exempt organisations are not considered provisional taxpayers but are required to submit tax returns as prescribed by the Commissioner of SARS.
  3. If returns are not submitted on time, the exempt institution will be liable for administrative penalties, and will be required to pay administrative penalties incurred.

The TEI Segment will be providing more information on the submission of returns in the coming months.

Financial Action Task Force – NPO Sector Survey

As part of addressing the Financial Action Task Force (FATF) Recommendations and Immediate Outcomes, the South African Revenue Service (SARS), the Department of Social Development (DSD): NPO Directorate and the Financial Intelligence Centre (FIC) will be embarking on a sector wide survey. The aim of the survey is to assess the NPO sector’s knowledge as it relates to terrorism financing and the likelihood of the sector being used for terrorism financing.

The survey was conducted by NPO sector and Government representatives, and identified participants, selected randomly, were contacted by these representatives to form part of the survey.

Should your organisation not be registered with either SARS, DSD, CIPC (NPC) or the Master of the High Court (Trust), and your organisation would like to form part of the focus groups that will be done during the course of August and September 2023, you are welcome to send an e-mail to [email protected]

Organisations are welcome to visit the Tax Exempt Institutions website (TEI FATF Recommendation on the NPO Sector ) for more information on FATF, Recommendation 8 and Immediate Outcome 10 and the impact on the NPO sector.

Third-Party Data Submissions by Trusts that are Tax Exempt Institutions

According to the Public Notice 3631 published in Government Gazette No. 48867 on 30 June 2023, all Trusts will be required to submit third-party information (IT3(t) – returns) on all amounts vested in beneficiaries including income (nett of expenditure), capital gains and capital amounts. Due to their philanthropic and altruistic nature, tax exempt (EI) Trusts are established to benefit the public at large. Therefore, these Trusts do not have the type of beneficiaries envisaged with the submission of IT3(t) returns i.e., beneficiaries of the Trust, as per the Trust instrument, and who will benefit from the income or assets of the Trust.

However, certain EI Trusts have other organisations listed as beneficiaries in their Trust instruments to whom distributions will be made on a periodic basis or as per the discretion of the trustees. Typical instances are where a conduit public benefit organisation (PBO) provides funding to one or more public benefit organisations as per the stipulations in the Trust instrument. These Trusts will also be required to submit IT3(t) third party returns for the year of assessment ending on the last day of February 2024.

EI Trusts that are approved Section 18A institutions, will be required to submit both the IT3(d) and IT3(t) data to SARS. Section 18A approved EI Trusts that would like to participate as early adopters for both the IT3(d) and IT3(t) third-party data project, are required to send an e-mail to [email protected]. Organisations are also welcome to visit the TEI and the Third-Party Data webpages for more information.

Exempt Institutions and PAYE

Tax exempt institutions (EIs) have an obligation to register as employers with SARS where any of their employees are liable for normal tax. To determine whether employees are liable for “normal tax”, the employer will have to determine whether the amounts paid to employees are above the tax thresholds or not. The impacted EI as employer will need to take remuneration, which includes basic salary, fringe benefits in kind, fringe benefits and allowances, into consideration. Individuals who receive remuneration more than the tax threshold, which is R 95 750 per annum (if you are younger than 65 years old) for the 2023/2024 year of assessment. More information on the tax threshold amounts is available here.

EIs that have employees earning above the tax threshold, R 95 750 per annum, are required to register with SARS as an employer here.

EIs that have employees that earn below R95 750 per annum are not required to register with SARS as an employer but are required to register for other statutory and legislative requirements. These required registrations include registering with the Department of Employment and Labour for UIF.

For more information on EIs and PAYE, please click here.

Next Issue Highlights

  • Section 18A webinar feedback
  • More information on IT3(d)
  • Importance of using registered Tax Practitioners

Should an exempt institution (EI) require more information on any of the topics covered in this issue of the EI Connect 3rd Edition they are welcome to send an email to [email protected]

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