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

tax breaks for public benefit organisationsWhat is a PBO?

Public Benefit Organisations (PBO’s) are established to conduct activities which benefit the general public. Due to the nature of their work, the Income Tax Act allows PBO’s 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 Receiver of Revenue (SARS).

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

  1. PBO’s do not pay income tax
  2. PBO’s do not pay donations tax nor are donations made to them subject to donations tax
  3. People donating to PBO’s 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?

  1. A Not-for-profit company formed in terms of the Companies Act of 2008. As its name indicates, this company operates without the primary objective of turning a profit for its shareholders.
  2. 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). This is a group of people acting for a common goal which is clearly defined in their constitution
  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:

  1. The entities named above must conduct, as their principal objective, one or more public benefit activities. These activities are listed in the 9th Schedule of the Income Tax Act and also on the “El 1 form” they have to submit to SARS for registration. SARS download available
  2. 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 PBO’s to obtain section 18A approval in addition to PBO approval.
This allows people that donate to these PBO’s 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 9th Schedule and also in bold on the above mentioned application form.

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