Non-profit organisations (NPOs) play a critical role in their communities and broader society by sharing in the responsibility of Government to pursue the social and developmental needs of South Africa. Certain NPOs can qualify as public benefit organisations (PBOs) which entitles them to a preferential tax regime. Most PBOs are dependent on donor funding and some of them are able to encourage such funding by being able to issue section 18A tax deductible receipts which entitles the donor to claim an income tax deduction.
In broad terms, entities that can issue section 18A tax deductible receipts include, amongst others:
- entities that are approved PBOs in terms of section 30 of the Income Tax Act and which conduct public benefit activities (PBAs) listed in Part II of the Ninth Schedule to the Income Tax Act (Activities PBOs); and
- entities that are approved PBOs in terms of section 30 of the Act and which donate funds or assets to, amongst others, Activities PBOs that conduct activities listed in Part II of the Ninth Schedule to the Income Tax Act (Conduit PBOs).
In recent years, Government has identified certain abuse within the PBO regime and has been increasingly implementing additional tax law amendments and compliance mechanisms for purposes of maintaining the sanctity of the critically important regime. For instance, the most recent Tax Administration Laws Amendment Act 24 of 2020 (TALA, 2020), introduced sanctions in the event that audit certificates (evidencing compliance with section 18A) are not adequately obtained, retained and submitted to SARS by the relevant PBOs.
Following on from this it was announced in the Budget that SARS has detected that receipts are being issued by entities that are not approved to do so. In this regard, to ensure that only valid donations are claimed and to enhance SARS ability to pre-populate individuals returns, it has been proposed that the information required in the section 18A tax deductible receipts be extended. Furthermore, section 18A-approved PBOs will in future need to comply with SARS third-party reporting mechanisms in respect of the receipts issued. It is clear that PBOs remain under the spotlight and PBOs would be well advised to continuously monitor and keep abreast of developments in this regard.
Author: Jerome Brink