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Income Tax Act Benefiting Public Benefit Organisations (PBO’s)

What is a Public Benefit Organisation or PBO?

Public Benefit Organisations (PBOs) are established to conduct activities that benefit the general public or a specific group of people. Due to the nature of their work, the Income Tax Act allows PBOs to carry on certain activities on a tax-free basis.

Organisations wanting to benefit from the tax exemptions granted by the Income Tax Act need to obtain approval from the South African Revenue Service (SARS).

The 3 Primary Tax Benefits that PBO’s enjoy are:

  1. PBOs do not pay income tax.
  2. PBOs do not pay donations tax, nor are donations made to them subject to donations tax.
  3. People donating to PBOs that carry out certain activities may deduct such donations, up to a certain amount, from their taxable income.

Who may apply for registration as a PBO?

The following entities may apply for registration as a PBO:

    1. A non-profit company formed in terms of the Companies Act of 2008.
    2. A trust established in South Africa for this purpose and registered with the Master of the High Court.
    3. A voluntary association of persons established in South Africa (Associations not for gain).
    4. A branch of a foreign charitable organization that is established in South Africa. This institution has to be exempt from income tax in its own country of origin.

Are there conditions to be met in order to qualify for approval as a PBO?

There are two important conditions to be met in order to qualify for approval:

  • The entities named above must conduct, as their principal objective, one or more public benefit activities. These activities are listed in the Income Tax Act.
  • The public benefit activity must be carried out in a non-profit manner with an altruistic or philanthropic intent and may not directly or indirectly promote the economic self-interest of any person responsible for the PBO or any of its employees.
  • Reasonable remuneration to office bearers or employees are however allowed.

Are there any benefits to persons donating to a PBO?

The Income Tax Act allows certain PBOs to obtain section 18A approval in addition to PBO approval.

This allows people that donate to these PBOs to deduct these donations from their taxable income. This deduction is limited to 10% of the donor’s taxable income. Section 18A approval however only applies to certain public benefit activities and are also listed in the Income Tax Act.

How to Apply for PBO Approval

The SARS application process for PBO approval is as follows:

  1. Complete the EL1 form and submit it to SARS.
  2. SARS will review the application and may request additional information.
  3. If the application is approved, SARS will issue a PBO approval letter.

Disclaimer

This article is for information purposes only and is not intended to be professional advice. Please consult with a tax advisor for specific advice on your situation.

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