NPO’s (Non Profit Organisations)

As the name suggests, an NPO is an organisation which operates in a non-profit manner. The entity may be a trust, company or other association where income and property are not distributed to its members or office bearers, except as reasonable compensation for services rendered.

A Registered NPO

Registration of a NPO is voluntary and is governed by the Non-profit Organisations Act, 1997 (NPO Act). Only NPO’s which are not part of government may apply for registration. Application forms and guidelines are available on the Department of Social Development website.

Reasons for registering an NPO

The main reasons for registering a NPO are:

  • To improve governance
  • To comply with the requirements of most funding agencies
  • To improve credibility

Once the organisation has been registered, the registration certificate and a certified copy of the organisation’s constitution will be sent to the organisation.

PBO’s (Public Benefit Organisations)

NPO’s do not automatically receive preferential tax treatment. Both registered and non-registered NPO’s may make application to the Tax Exemption Unit (TEU) of SARS for exemption from tax. Section 30 of the Income Tax Act sets out the conditions and requirements for an organisation to be approved as a PBO and Schedule Nine of the Income Tax Act lists the Public Benefit Activities. The application forms, EI1 and EI2 as well as the SARS guides are available on the SARS website. Once the application has been approved, a unique PBO reference number is allocated to the organisation.

ELIGIBILITY TO ISSUE SECTION 18A RECEIPTS

As stated in the SARS Guide to Income Tax for PBO’s, an approved PBO that was incorporated, formed or established in South Africa and which conducts public benefit actions, listed in Part II of the Ninth Schedule, must apply to the TEU for permission to issue section 18A receipts for donations received. Successful applicants will be added to the list of section 18A approved PBO’s which is updated regularly and is published on the SARS website. Once approval has been granted, the PBO may issue a Section 18A receipt to donors so they may claim the donation, subject to certain limitations, as a deduction against their taxable income.

Karen Paul

Senior Tax Consultant, Durban

Also read: IRP5 and EMP501 Submissions made easy