In this second NPO-related article, we continue discussing some legal aspects of non-profit organisations and the benefits thereof. Please refer to article 1 of 2 as well.
• Constitution of the Republic of South Africa, Act 108 of 1997 (as amended)
• Companies Act of 2008 and Companies Amendment Act of 2011
• Non-Profit Organisations Act 71 of 1997 (as amended) (“NPO Act”)
• Trust Property Control Act 57 of 1988 (“TPCA”)
• Income Tax Act 58 of 1962 (as amended)
• Value Added Tax Act 89 of 1991 (“VAT Act”)
• Financial Intelligence Centre Act 38 of 2001 (“FICA”) and Financial Intelligence Centre Amendment Act, 2017 (Act 1 of 2017)
• BEE Amendment Act 46 of 2013
• BEE Amended Code of Good Practice – May 2019
Tax benefits to donors
Donors also benefit when donating to a PBO compared to any other organisation. By donating to a tax-exempt PBO, the donor may achieve, among others, the following tax benefits:
20 percent donations tax;
20 percent estate duty; and
10-14 percent capital gains tax.
To further incentivise donors to donate towards certain PBAs, government has also introduced additional tax savings to donors. Where a donor donates cash or in kind to PBOs, which are conducting certain PBAs, the donor will also achieve income tax savings by claiming a deduction of the donation against their taxable income.
Value Added Tax
The Value Added Tax Act imposes a 15 percent tax on the value of goods or services supplied by a vendor, imported goods, or services provided by a resident supplier or one carrying out business outside of South Africa to a resident of South Africa who uses the services in South Africa (VAT Act Section 7(1)).
The VAT Act provides certain benefits to organisations that qualify as “associations not for gain,” “welfare organisations,” or both (VAT Act Section 1). Qualifying organisations can claim the VAT they incur as input tax and, generally speaking, must pay output tax only when they charge for goods or services.
An “association not for gain” is defined as a religious institution or other society, association, or organisation (including an educational institution of a public character), which is not established for profit and which is required to use any property or income solely to further its aims and objectives.
An association not for gain is treated much like any other business if it makes taxable supplies, but the following special provisions apply:
• No output tax is payable on any “unconditional gifts” received, such as a club member’s donation of money to cover the costs of new equipment for the club’s soccer team.
• A VAT exemption applies to the sale of any donated goods or services, and to the sale of manufactured goods where donated goods and services constitute at least 80 percent of the value thereof.
• Certain subsidies and grants received from National or Provincial Governments (public authority) are zero-rated, meaning that the recipient can claim a credit from the South African Revenue Service for the VAT levied on those grants.
Some associations not for gain also qualify as “welfare organisations,” which entitles them to the benefits listed above plus additional ones. In order to qualify as a “welfare organisation,” an organisation must:
- Be an association not for gain;
- Be exempt from tax in terms of Section 10(1)(cN) of the Income Tax Act; and
- Carry on activities in the following categories:
- Welfare and humanitarian;
- Health care;
- Land and housing;
- Education and development; or
- Conservation, environment, and animal welfare.
Along with the benefits listed above for associations not for gain, a welfare organisation is eligible for the following additional benefits:
• Even where no charge is made for supplies, the organisation can register for VAT and obtain input tax relief on its purchases.
• A subsidy or grant received from the Government (or local authorities) related to welfare activities will be zero-rated, meaning that the recipient can claim a credit from the South African Revenue Service for the VAT raised on those grants.
Financial Statements and NPOs
Section 17 (1) (b) provides that every registered NPO must, to the standards of generally accepted accounting practice, within six months after the end of its financial year, draw up financial statements, which must include at least a statement of income and expenditure for that financial year; and a balance sheet showing its assets, liabilities and financial position as at the end of that financial year.
Section 17(1)(2) compels registered NPO to arrange, within two months after drawing up its financial statements, for a written report to be compiled by an accounting officer and submitted to the NPO.
Essentially, within eight months after its financial year-end. The financial statements compiled by the accounting officer must state whether or not:
• the financial statements of the NPO are consistent with its accounting records;
• the accounting policies of the NPO are appropriate and have been appropriately applied in the
An accounting officer is defined in the NPO Act and it sets out the requirements that accounting officers must comply with.
It also permits the Minister of Trade and Industry to publish in the Government Gazette the names of those professional bodies whose members are qualified to perform the duties of an accounting officer in terms of the Close Corporation Act.
The Companies and Intellectual Property Commission, on its website, recognises the following professional accounting bodies: SAICA, ICSA, CIMA, SAIPA, IAC, ACCA, MCIBM, SAIBA, SAIGA and auditors registered in terms of the provisions of the Auditing Profession Act, 2005. It is important to note that the financial report must contain certain statements, including that the NPO has complied with its constitution which relate to financial matters.
For BEE-related NPO information, please refer to the article “NPOs and BEE Measurement” published on our partner website www.beeratings.com
Author Craig Tonkin