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 … Continue reading

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.

Increased compliance burden on the cards for PBOs

By David Warneke, Director: Tax, BDO South Africa Johannesburg, South Africa- In the first version of the Draft Taxation Laws Amendment Bill of 2014 that was released in July, it was proposed that Public Benefit Organisations (PBOs) that provide assets or funding to other PBOs would have to comply with a prescribed investment regime. In terms of current law such PBOs have to distribute, or incur the obligation to distribute at least 75 per cent of the donations received during the year of assessment for which section 18A receipts were issued, within 12 months of the end of the year of assessment (s18A(2A)(b)). The Commissioner is given the discretion to vary this requirement having regard to the public interest and the purpose for which the PBO wishes to accumulate the funds.

The Cape Tax Court interprets the statutory criteria for approval by SARS as a tax-exempt PBO

Author: BDO South Africa The decision of the Cape Town Tax Court in ITC 1872 (2014) 76 SATC 225 brings long-awaited clarity to the interpretation of the statutory criteria that a public benefit organisation (PBO) needs to satisfy in order to qualify for tax exemption in terms of s 10(1)(cN) of the Income Tax Act 58 of 1962, read with the provisions of the Ninth Schedule to the Act.

Donating to Public Benefit Organisations

Public benefit organisations (‘PBOs’) provide invaluable healthcare, education, poverty alleviation, housing, conservation, environmental, cultural and religious services in South Africa. The important role that these organisations play in our society is recognised by the legislature which has provided PBOs with a number of tax advantages.

Proposed amendments to the Public Benefit Organisation provisions

Currently, conduit Public Benefit Organisations (PBOs) (PBOs which do not carry on a Public Benefit Activity listed in Part II of the 9th Schedule, but which provide funds or assets to other approved PBOs) are obliged to distribute or incur an obligation to distribute, to other approved PBOs, at least 75% of the donations received for which a section 18A deductible receipt was issued, within 12 months of the end of the year of assessment in which the donation is received.