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Sharing is caring – ruling on disposal and acquisition of shares by a PBO

Authors: Louis Botha and Jessica Osmond.The Income Tax Act, No 58 of 1962 (Act) states that where a non-profit company, trust or association of persons meets certain requirements in the Act, it can be approved by SARS as a public benefit organisation (PBO), which enjoys certain tax benefits. To obtain approval a PBO is required, amongst other things, to carry on public benefit activities (PBAs) with a philanthropic intent and in a non-profit manner. However, it may happen that a PBO has excess funds that it would like to invest to earn interest, for example, which interest it would then also use to carry on public benefit activities.

Tax exemption is not a formality the Tax Court considers the PBO status of a non-profit company

Authors: Louise Kotze and Louis Botha. In terms of s30 of the Income Tax Act, No 58 of 1962 (Act), an entity can only become a public benefit organisation (PBO) if it meets the requirements in that section and is approved by the South African Revenue Service (SARS) as a PBO. In practice, to be approved as a PBO, an application must be submitted to SARSs Tax Exemption Unit (TEU).

Tax compliance is crucial for Public Benefit Organisations (PBOs) and their donors

South Africas Public Benefit Organisations (PBOs) do invaluable work uplifting communities and benefiting underprivileged people across our country. Sadly, most of these entities do not have the resources to ensure that they are fully tax compliant. However, the tax status of a SARS approved Public Benefit Organisation (PBO) is crucial to its ability to raise funds and attract donors, who along with wanting to be philanthropic, are attracted by the tax deductions that come with donations to such organisations. These entities are often exempt from paying income tax and are entitled to issue Section 18A certificates to donors. A lack of tax compliance can see these PBOs lose their tax exemption status, prejudicing themselves, the communities they serve, as well as the companies and individuals that donate to them. Once a charitable or community organisation is no longer tax compliant, it may become liable to pay income tax on the Read More …

Recent developments in the PBO arena – tax compliance in the religious sector and general tax provisions applicable to PBOs

Author: Louis Botha (Tax Associate at Cliffe Dekker Hofmeyr). On 26 January 2018 the South African Revenue Service (SARS) issued a media release (Media Statement) regarding its intention to investigate possible tax non-compliance in the religious sector. In this article we will discuss the issues raised by SARS in the Media Statement as well as some of the relevant legal provisions that have to be met in order for organisations, including religious organisations, to be approved as a public benefit organisation (PBO).

Public benefit organisations – provision of funds, assets or other resources to associations of persons

On 18 August 2015, the South African Revenue Service (SARS) released a draft Interpretation Note (Draft IN) on Public Benefit Organisations (PBOs) that provide funds, assets or resources to other associations that use such funds, assets or resources to carry on qualifying public benefit activities (PBAs). PBOs play an important role in society as they relieve the financial burden on the State in respect of undertaking PBAs. Tax exemptions and deductions are available to assist PBO’s in conducting the said PBAs and achieving their objectives. The PBA conducted by a PBO must, in accordance with s30 of the Income Tax Act, No 58 of 1962 (Act), be carried out in a non-profit manner and with an altruistic or philanthropic intent.

Public benefit organisations – the tax treatment of income derived from trading activities

Public benefit organisations (PBOs) play an important role in society as they relieve the financial burden on the state to undertake public benefit activities. Tax exemptions and deductions are available to assist PBOs achieve their objectives. The sole or main object of a PBO must be to conduct a public benefit activity. The PBO’s public benefit activity must, in accordance with s30 of the Income Tax Act, No 58 of 1962 (Act), be carried out in a non-profit manner and with an altruistic or philanthropic intent. Consequently, a PBO which carries on a public benefit activity with the sole purpose of making a profit will act contrary to the fundamental objective of a PBO. However, in a situation where a PBO, as part of undertaking a public benefit activity carries on a business undertaking or trading activity and earns income, is the PBO contravening the provisions of s30 of the Read More …

VAT status of payments to welfare organisations clarified by the High Court

Author: Gerhard Badenhorst (Tax Executive at ENSAfrica) The SA Red Cross Air Mercy Service Trust (“the Trust”) approached the High Court for a declaratory order regarding the value added tax (“VAT”) status of payments it receives from the health departments of provincial governments to provide air rescue services as and when required. In its judgment delivered on 6 May 2015, the High Court found in favour of the Trust that the payments qualify for VAT at the rate of zero per cent. It was common cause that the Trust is a welfare organization and that its activities constitute welfare activities, being the rescue or care of persons in distress.

No tax on SA’s flying doctor – court

Author: Ilse de Lange (The Citizen) The SA Red Cross Air Mercy Service Trust was a welfare organisation and did not have to pay VAT on its services, the North Gauteng High Court in Pretoria has ruled. The trust approached the court for relief after the SA Revenue Service (Sars) ruled two years ago it had to pay 14% VAT on the fixed monthly fee and hourly rates for each flight they received from provincial government.

Binding Ruling – Conversion of a PBO to a for-profit Company

In Binding Private Ruling 188 (‘BPR’) SARS recently dealt with the conversion of a tax exempt Public Benefit Organisation (‘PBO’) to a for-profit company. Parties to the proposed transaction were a company incorporated in a foreign country and limited by guarantee, which is registered in South Africa as an external company (the ‘Applicant’ or ‘Applicant PBO’) under section 23(1)(a) of the Companies Act, 2008, and a PBO under section 30 or the Income Tax Act (‘the Act’). Section 30 governs PBOs in the Act.

Conversion of a PDO to a for-profit Company

In Binding Private Ruling 188 (‘BPR’) SARS recently dealt with the conversion of a tax exempt Public Benefit Organisation (‘PBO’) to a for-profit company. Parties to the proposed transaction were a company incorporated in a foreign country and limited by guarantee, which is registered in South Africa as an external company (the ‘Applicant’ or ‘Applicant PBO’) under section 23(1)(a) of the Companies Act, 2008, and a PBO under section 30 or the Income Tax Act (‘the Act’). Section 30 governs PBOs in the Act.