One example is given below whereby money is donated to a PBO at a fundraising event.
The relevant Act is the Income Tax Act 58 OF 1962 and Section 18A SARS issued a binding private ruling in 2019 at the request of a company (the PBO)and is explained below.
Note that private binding rulings do not constitute a practice generally prevailing as this is specific to the company in question however the methodology used by SARS is of interest to all companies.
The ruling determines the tax treatment of payments made to the applicant, a public benefit organisation (PBO) approved under section 30, at a fundraising event and is based on the interpretation and application of section 18A of the Act.
Parties to the proposed transaction are: the applicant being a non-profit resident company approved as a PBO under section 30.
Detail of the transaction process presented to SARS for tax adjudication:
The applicant will host a fundraising event as a means of encouraging donations towards its public benefit activities.
The fundraising event will be managed by an external events management company. During the fundraising event attendees will make payments to participate in activities as well as make donations of money. The events management company will develop and manage an electronic system that will enable attendees to make the requisite payments during the fundraising event. This will be done by way of roaming electronic touchscreen devices. The system will distinguish the various payments as either payments to participate in activities or to make donations of money, and it will also tally the various amounts at the end of the fundraising evening.
Each attendee will settle the total amount due in respect of his or her transactions at the end of the evening by a single credit card payment.
The applicant will use the reports generated by the system to determine which attendees are eligible to receive a section 18A receipt as well as the amount to be indicated on the receipt.
Only the donations made by each attendee will be reflected on the section 18A receipt.
From this process SARS stipluated conditions and listed assumptions during the adjudication process.
The binding private ruling is subject to the additional condition and assumption that the payment tracking system to be used by the applicant at the fundraising event, must as nearly as practicable conform to the one proposed and be easy to verify in respect of its intended function of accounting for donations of money separately from other payments.
What was the outcome of the SARS ruling?
The donations made to the applicant which have been identified as such by the applicant’s proposed payment tracking system at its fundraising event will constitute “bona fide” donations made to a PBO under section 18A; and
The applicant may issue the donors with section 18A receipts in respect of those “bona fide” donations.
Whilst the ruling is clearly beneficial to the PBO and the donors of money it must be noted that this private biding ruling may be reviewed and set aside should any amendments to the Income Tax Act have an influence on the ruling.
SARS typically provide a timeframe for use of such rulings and in this case the period of use is 5 years.
Companies not fully aware of tax implications related to Public Benefit Organisations should obtain tax advice to avoid any negative implications down-the-line.
Author Craig Tonkin