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Taxation of Public Benefit Organisations Changed

Tuesday, 14 January 2014   (0 Comments)
Posted by: Author: Ingé Lamprecht
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Author: Ingé Lamprecht (Moneywebtax)

‘Ruling could take parties unaware’ - Piet Nel.

Public benefit organisations (PBOs) should take note of a new binding ruling issued by the South African Revenue Service (SARS), which could result in the loss of their tax exemption on business undertakings or trade activities.

Last month, SARS issued a binding general ruling, which aims to provide clarity on the concept "substantially the whole".

In terms of tax legislation, public benefit organisations and recreational clubs do not have to pay tax on amounts received or accrued from business or trading activities that do not fall within their normal public benefit activities, provided that "substantially the whole" of the funds derived from these activities are directed towards the recovery of costs.

For example: The majority of the income of a church with PBO status may come from tithing, which for tax purposes, would be deemed a public benefit activity and would be exempt from tax. The church may however also regularly sell hamburgers on Saturdays as a means to supplement its income. This would be regarded as a business undertaking or trading activity.

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Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.

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