The South African Income Tax Act, 1962 (the "Income Tax Act") contains exemptions from income tax that apply to institutions such as pension funds, certain universities and non-profit public benefit organisations, with an altruistic or philanthropic intent.
More specifically, a non-profit organisation may apply to the South African Revenue Service ("SARS") to be registered as a Public Benefit Organisation ("PBO") in terms of section 30 of the Income Tax Act if it meets certain specified requirements. If the requirements of section 10(1)(cN) of the Income Tax Act are met by the PBO, then the accruals and receipts of such PBO are exempt from income tax.
Furthermore, the receipts and accruals of a university, of which the principal object is the conducting of scientific, technical or industrial research, which are approved by SARS and comply with the requirements of section 10(1)(cA), are exempt from income tax.
In addition, the receipts and accruals of a "pension fund" (as defined in the Income Tax Act) are exempt in terms of section 10(1)(d) of the Income Tax Act.
- Tax exemptions are not limited to income tax – pension funds, PBOs and universities may also qualify for an exemption from donations tax, dividends tax and capital gains tax (all levied in terms of the Income Tax Act).
- However, to the extent that tax-exempt institutions acquire shares, the tax position is slightly different. Securities transfer tax ("STT") is levied upon the transfer of shares that are issued by South African incorporated companies or foreign companies that are listed on a South African exchange. These provisions are set out in the Securities Transfer Tax Act, 2007 (the "STT Act"). STT is currently levied at a rate of 0.25% on the taxable amount of every transfer of a security. In the context of the acquisition of listed shares, the STT liability is that of the member (ie, stock broker) or central securities depository participant from or through whom the shares are acquired. However, the STT Act provides that the tax may be recovered from the person to whom the shares are transferred. A pension fund, PBO or university may, absent an applicable exemption, effectively suffer STT upon the acquisition of shares.
- Section 8 of the STT Act contains certain exemptions from STT. In particular, section 8(1)(d) of the STT Act provides that STT is not payable in respect of a transfer of a security if the security is transferred to a PBO that is exempt from income tax in terms of section 10(1)(cN) of the Income Tax Act, if the tax thereon would be legally payable and borne by that PBO. A similar exemption is provided for in section 8(1)(e) of the STT Act for an institution that is exempt from tax in terms of section 10(1)(cA)(i) of the Income Tax Act.
- Therefore, registered PBOs and approved universities that are exempt from the payment of income tax in terms of sections 10(1)(cN) or 10(1)(cA)(i) of the Income Tax Act are also exempt from STT in terms of sections 8(1)(d) and (e) of the STT Act.
- However, it is noted that a pension fund is not entitled to a similar STT exemption and it is not clear on what basis a pension fund has not been afforded the same STT relief.
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.