Tax Exemption Guide for - samemonfoundation.co.za

1 Tax Exemption Guide forPublic Benefi t Organisationsin South AfricaPBOs 1 PBOs 111/5/07 9:24:43 AM11/5/07 9:24:43 AMPBOs 2 PBOs 211/5/07 9:24:46 AM11/5/07 9:24:46 AMTax Exemption Guide for public Benefi t Organisations in South AfricaThis document is a general Guide dealing with the tax Exemption of public Benefi t Organisations in South fairly comprehensive it does not deal with all the legal detail associated with the Exemption of public Benefi t serves the purpose of a Guide only and should not be used as a legal reference. Binding general rulings are therefore not dealt with in this Guide is based on the legislation as at 31 August 2007. If an answer to your specifi c situation is not provided in this document or should you require additional information you may: Contact your own tax advisors or practitioners Contact the SARS Tax Exemption Unit (contact details in Annexure I) Visit the SARS website at and updated by:Legal and Policy Division SOUTH AFRICAN REVENUE SERVICE Date of fi rst issue: 30 November 2002 Date of second issue: 15 March 2004 Date of third issue: 10 October 2007 PBOs 3 PBOs 311/5/07 9:24:46 AM11/5/07 9:24:46 AMContents1 Glossary.

2 12 Introduction .. 33 Background .. 34 Income tax Exemption .. 45 Qualifying PBOs .. 5 public Benefi t Organisation .. 5 public Benefi t Activities .. 6 Formal requirements to be incorporated in founding 6 Other requirements .. 86 Trading and partial taxation .. 10 Background ..10 Current provisions ..10 Meaning of certain terminology .. 11 Trading rules categories of trading activities not subject to tax .. 13 Integral and directly related trade .. 13 Occasional trade .. 14 Ministerial approval .. 15 Basic Exemption .. 15 Transfer of immovable property .. 16 7 Specifi c issues in respect of PBOs .. 16 Tax rates for trading activities in respect of PBOs.

3 16 PBOs 4 PBOs 411/5/07 9:24:46 AM11/5/07 9:24:46 AM Provisional tax payments .. 16 Branches of foreign charities .. 16 Educational Institutions: Schools .. 17 public schools .. 17 Independent 17 Sporting associations .. 17 Social and recreational clubs .. 17 Amateur sporting bodies .. 18 Scholarships .. 18 Transfrontier areas / Peace Parks .. 19 Granting of Loans .. 198 Reporting requirements .. 19 Record keeping .. 19 Income tax returns .. 19 Financial statements .. 20 Information available to SARS.

4 209 Implementation dates .. 2010 Transitional Provisions .. 21 Organisations exempt in terms of the repealed legislation .. 21 New applications .. 21 PBOs 5 PBOs 511/5/07 9:24:46 AM11/5/07 9:24:46 AM11 Group registration ..21 General ..21 Non-compliance .. 2212 Tax avoidance /non-compliance .. 22 Exemption not granted .. 22 Offences ..22 Penalties ..23 Additional taxes .. 23 Withdrawal of approval .. 2313 Tax deductibility of donations .. 23 General ..23 Organisations qualifying for section 18A approval .. 24 Deduction of donations from taxable income .. 25 Donations .. 26 What is a bona fi de donation?

5 26 Donation of property made in kind .. 26 Donation in respect of services rendered .. 26 Payments that do not constitute a bona fi de donation for purposes of section 18A .. 27 Value in respect of the donation of property made in kind .. 27 Receipt to be issued .. 27 Control measures .. 28 PBOs 6 PBOs 611/5/07 9:24:46 AM11/5/07 9:24:46 AM Abuse of approval .. 28 Intentional abuse of approval .. 29 Re-application for approval .. 29 Effective date to issue receipts .. 2914 Exemption from other taxes and duties .. 29 Donations tax .. 29 Estate duty .. 30 Transfer duty .. 30 Stamp duty .. 30 Uncertifi cated Securities Tax (UST) .. 30 Skills development levy.

6 30 Capital Gains Tax .. 3115 Objections and appeals .. 3516 VAT Implications .. 35 17 Employees tax (SITE and PAYE) .. 3818 Unemployment Insurance Fund contributions .. 3819 Customs and Excise Implications .. 38 AnnexuresA Other exemptions in terms of the Income Tax Act .. 41B Section 10(1)(cN) of the Income Tax Act .. 42C Section 18A of the Income Tax Act .. 43 PBOs 7 PBOs 711/5/07 9:24:46 AM11/5/07 9:24:46 AMD Section 30 of the Income Tax Act .. 48E Section 30 Approved PBAs Part I of the Ninth Schedule .. 53F Section 18A Approved PBAs Part II of the Ninth 59G Example of Section 18A certifi cate .. 63H Regulations .. 64I Contact details: SARS -Tax Exemption Unit .. 66 PBOs 8 PBOs 811/5/07 9:24:46 AM11/5/07 9:24:46 AMTax Exemption Guide for public Benefi t Organisations in South Africa | 11 Glossary ActIncome Tax Act, 1962 (Act No.)

7 58 of 1962 as amended)Basic exemptionThe threshold determined by calculating the amount of total receipts and accruals derived from taxable trading activities which are exempt from normal tax. Capital Gains Tax (CGT)The tax payable on the profi t arising from the disposal of assets, determined in accordance with the Eighth Schedule of the ActCommissionerCommissioner for the South African Revenue ServiceCo-ordinating bodyThe regulating or co-ordinating body of a group of related organisations which share the same objectives and governance provisions. Donations TaxTax at the rate of 20% payable by the donor on the value of property disposed of under a donation, in terms of the DutyDuty payable on the dutiable amount of an estate of a deceased person at a rate of 20%, in terms of the Estate Duty Act, of person who holds a position of trust or responsibility including decision making powers with respect to the affairs of an organisation.

8 Founding documentThe written founding document establishing and governing an organisation. In the case of a company incorporated under section 21 of the Companies Act, No. 61 of 1973 it is the Memorandum and Articles of Association; in respect of a voluntary association of persons, it is the written constitution and in respect of a trust, the Trust Deed. Income and related taxes, duties and leviesIncome tax, donations tax, estate duty, transfer duty, stamp duty, VAT and skills development of t taxation The method of taxing the receipts and accruals derived from business or trading activities which fall outside the parameters of the exempt categories including the basic Exemption threshold. PBAP ublic benefi t Sec1:9 PBOs Sec1:911/5/07 9:24:46 AM11/5/07 9:24:46 AM2 | Tax Exemption Guide for public Benefi t Organisations in South AfricaPoor and NeedyImpoverished, having little means and few possessions and therefore in need of basic necessities and Benefi t ActivityAny activity listed in Part 1 of the Ninth Schedule to the Act (see Annexure E) and any other activity determined by the Minister of Finance by notice in the Gazette to be of a benevolent nature having regard to the needs, interests and well-being of the general Benefi t OrganisationAny organisation which is - a company incorporated in the Republic under section 21 of the Companies Act, 1973 a trust formed in the Republic; an association of persons established in the Republic.

9 Or a branch established in the Republic by a charity which has been formed or established in terms of the laws of any country outside the Republic and which is exempt from income tax in such other country, which carries on a public benefi t activity and complies with the provisions of section 30 of the Act (see 5).PBOP ublic benefi t organisationRepublicRepublic of South AfricaSARSS outh African Revenue ServiceSection 10(1)(cN) of the ActThe section of the Act which provides for the Exemption from normal tax of certain receipts and accruals of those public benefi t organisations which have been approved by the Commissioner in terms of section 30 of the Act and for the taxation of certain receipts and accruals derived from business activities falling outside the allowable trading 18A The section of the Act providing for the tax deductibility of donations made to approved public benefi t organisations, institutions, boards or bodies or the government, provincial administrations or local authorities, carrying on certain approved PBAs as listed in Part II of the Ninth Schedule to the Act (see Annexure F).

10 Section 18A receiptsSpecial prescribed receipts issued to donors in terms of section 18A of the Act entitling the donors to a tax 30 The section of the Act detailing the conditions and requirements which must be complied with by public benefi t organisations in order to gain and retain approval by the Commissioner for purposes of tax Exemption . Tax Exemption Unit (TEU)A division within SARS having special responsibility for matters relating to Exemption from specifi c taxes and duties in respect of certain organisations. Transfer DutyDuty payable on the transfer of property in terms of the Transfer Duty Act No. 40 of Sec1:10 PBOs Sec1:1011/5/07 9:24:46 AM11/5/07 9:24:46 AMTax Exemption Guide for public Benefi t Organisations in South Africa | 3 VATV alue-added tax payable in terms of the VAT Act, No. 89 of 1991 VAT Act Value-Added Tax Act, No. 89 of 19912 IntroductionThis Guide has been prepared to assist non-profi t organisations in the Republic to understand the tax implications affecting them with specifi c reference to income tax, donations tax, capital gains tax, estate duty, stamp duty, transfer duty, customs duty and skills development levy.