Donating to Public Benefit Organisations
23 September 2014
Posted by: Author: BDO South Africa
Author: BDO South Africa
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.
trading activities are integral and directly related to the sole object of the
PBO, are carried out substantially on a basis of cost recovery and do not
result in unfair competition in relation to taxable entities.
- The trading activities are of an occasional
nature and are undertaken substantially with assistance on a voluntary basis
trading activities are approved by the Minister by notice in the Gazette having
regard to the nature of the activities, their profitability, the object of the
PBO and competition with non tax-exempt entities.
receipts and accruals relating to trading activities do not exceed the greater
of R200 000 or 5% of the total receipts and accruals of the entity. Receipts
and accruals which are not exempt in terms of the above are subject to income
tax at a rate of 28 per cent.
taxation regimes also exist for PBOs in terms of their potential liability for
transfer duty, capital gains tax, VAT and Skills Development Levies
In order for an organisation to qualify as
a PBO it must either be a South African resident trust, association or
non-profit company as defined in the Companies Act of 2008 (previously a
section 21 company in terms of the Companies Act of 1973) or a South African
branch of a foreign company, association or trust which is exempt from tax in
its country of formation or incorporation.
The organisation must have its sole or
principle object the carrying on of one or more public benefit activities in a
manner which is not-for-profit and all activities must be carried out with an
altruistic or philanthropic intent. No activity of the organisation may
directly or indirectly promote the economic self-interest of a fiduciary or
employee of the company except by way of reasonable remuneration.
The Commissioner will approve an
organisation's status as a PBO if the written constitution of the organisation
organisation is required to have at least 3 unconnected persons who accept
fiduciary responsibility for the organisation
organisation is prohibited from distributing any funds to any persons (other
than in pursuit of a public benefit activity) and is required to utilise all
funds for the object for which it has been established;
- On dissolution of the organisation it is
required to transfer its assets to another PBO or to the government;
organisation is prohibited from accepting donations which are revocable at the
instance of the donor; and
organisation is required to lodge amendments to its constitution with the
The Commissioner will not approve an
organisation's PBO status if it is or was a knowing party to a tax-avoidance
scheme or if excessive remuneration has or will be paid to employees (taking
into account what is generally considered reasonable in the sector in relation
to the services rendered).
Donations are an important source of
funding for many South African PBOs. This is recognised by the legislature
which has made a number of concessions which make donations to PBOs more
attractive from a tax point of view.
A specific exemption from donations tax is
granted for donations made by or to a PBO. Donations tax would otherwise be
payable at a rate of 20 per cent on the value of gratuitous disposals made by
or to a PBO, including any disposal for consideration which is, in the opinion
of the Commissioner, less than the market value of the asset transferred.
A donation is a disposal in terms of the
Eighth Schedule to the Act with the effect that capital gains tax must be paid
on the disposal in the absence of a specific exclusion therefrom. However, the
Eighth Schedule to the Act contains a specific exclusion which provides that a
capital gain realised by a donor on the donation of an asset to a PBO must be
Donations are not deductible for tax
purposes in terms of the general deduction formula because a donation is
neither in the production of income nor laid out for the purposes of trade.
However, specific provision is made in the Act that provides specifically for
an income tax deduction which is available to donors who make donations in cash
or in kind to PBOs which are registered with and approved by SARS and which
perform public benefit activities as contemplated in the Act. Such public
benefit activities include activities which fall under the following headings:
healthcare; welfare and humanitarian; education and development; conservation, environment
and animal welfare; and land and housing.
The annual tax deduction for donations to
qualifying PBOs in terms of the Act is extremely generous - donations are
deductible up to a maximum of 10 per cent of the donor's taxable income
calculated after the inclusion of taxable capital gains. A recent amendment
which became effective on 1 March 2014 provides that in the event that a
donor's donations to qualifying PBOs in a particular year of assessment exceed
the abovementioned 10 per cent limit, the excess can be carried forward and
claimed as a deduction in the donor's succeeding year of assessment. This
amendment is welcomed as it allows a donor wishing to make a significant
donation (exceeding 10 per cent of the donor's taxable income) to a PBO in a
single year of assessment without the donor sacrificing the tax benefits in
making such a large donation in a single amount.
In order for a donation to a qualifying PBO
to be eligible for an income tax deduction, the donor must be in possession of
a tax certificate issued by the PBO.
This certificate must at minimum include
the following information:
- The reference number of the donee issued by
the Commissioner for the purposes of this deduction;
date of receipt of the donation;
name of the donee which received the donation together with an address to which
enquiries may be directed in connection therewith;
- The name and address of the donor
amount of the donation or the nature of the donation if not in cash; and
‘certification' to the effect that the receipt is issued for the purposes of s
18A and that the donation has been or will be used exclusively for the object
of the donee concerned.
For more information on how to register a
PBO to make use of these tax advantages while at the same time promoting a good
cause, please contact your SAIT tax professional.
article first appeared on bdo.co.za.