In order to register as a Public Benefit Organisation
("PBO") with the South African Revenue
Service ("SARS"), an organisation must
comply with a number of provisions, set out in section 30 of the
Income Tax Act No 58 of 1962 ("the Income Tax
Act"). Preferential tax treatment is conferred on a
non-profit organization which has obtained PBO status and such
compliant organisation's receipts and accruals are exempt from
certain South African taxes.
One of the first administrative requirements to satisfy relates
to the manner in which the non-profit organisation is constituted
and in order to qualify as a PBO, a non-profit organisation must be
constituted in one of the following ways: a non-profit company
("NPC"), a trust, a voluntary
association of persons or as a branch of a foreign charitable
organisation which is exempt from income tax in its country of
In this regard, the vehicle used most often is a NPC. In
South Africa, all companies are regulated in terms of the new
Companies Act, 71 of 2008 ("new Companies
Act"). A variety of statutes govern the
abovementioned vehicles and as a consequence thereof, each requires
adherance to different rules and procedures. With this in
mind, it is of the utmost importance to take note of any legisltive
changes relevant to the specific vehicle utilised in incorporating
a particular a non-profit organisation.
In terms of the previous the Companies Act, 61 of 1973, a NPC
was known as a section 21 company (association not for gain).
The new Companies Act came into operation on 1 May 2011 and on such
effective date essentially, all existing section 21 companies were
required to convert to NPCs.
This conversion included the conversion of the company's
founding documents, which in the case of a section 21 company
resulted in the adoption of a Memorandum of Incorporation
("MOI"). The MOI wholly replaced
the company's existing Memorandum and Articles of
In an attempt to alleviate the financial and administrative
burden for companies being required to convert, provision has been
made for a "transitional period". This is a period
of two years from the effective date of 1 May 2011 and during this
time all existing companies are required to amend their MOIs in
order to bring same in line with the new Companies Act.
Where a NPC is required to amend its MOI, the company is
presented with an ideal opportunity to update and streamline its
founding documents as well as its governance structures. This
is of particular relevance for any qualifying NPCs which are not
yet registered as PBOs.
As mentioned above, various compliance procedures are prescribed
in the Income Tax Act, which are to be adhered to, in order for a
non-profit organisation to formally apply to SARS for tax exempt
status. In this regard, it is important to note that
registration as a NPC does not automatically result in the
organisation qualifying for tax exemption.
It is imperative for any NPC, which carries on any one of
several public benefit activities
("PBA") (provided for in Part I and Part
II of the Ninth Schedule to the Income Tax Act) and which is not
currently registered by SARS as a PBO, to be adequately informed of
the immeasurable benefits available to such an organisation, in the
event of it being able to successfully register as a PBO.
The benefits do not exclusively relate to exemption from income
tax, but in certain instances, may be extended to donor
deductibility. Provided certain additional requirements are
complied with, namely that the NPC conducts any of the specific
public benefit activities listed in Part II of the Ninth Schedule,
such a NPC will also qualify for section 18A donor deductibility
status. In other words, where donors donate funds to a PBO
having section 18A approval, the donors will be permitted to deduct
the value of their donation from their taxable income, limited to
10% of the donor's taxable income. This is a benefit
which could significantly assist a non-profit organisation in
attracting donations and funding in general.
In conclusion, it is important for qualifying non-profit
organisations to note that both the conversion of the founding
documents as well as the application for PBO status can be a cost
effective and efficient process. The benefits of attaining
PBO status are infinite and may ultimately allow a PBO to
significantly expand the reach of its activities and thus provide
greater assistance to its community.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
Specific Questions relating to this article should be addressed directly to the author.
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