Registering a Non-Profit entity: Part 3- The Public Benefit Organisation (PBO)
In Part 1 I looked at the distinction between NPOs and NPCs. In Part 2 I looked at some factors to consider when deciding whether to register an NPO or NPC.
Parts 3 and 4 are going to focus on some frequently asked questions regarding PBOs.
- What is a PBO?
In my article entitled “Do you want to start a Non-Profit?” I looked at that very question, “What is a PBO?”, so let’s start here.
PBO stands for Public Benefit Organisation. Once your non-profit is registered as either an Non-Profit Company (“NPC”) or Non-Profit Organisation (“NPO”), you can apply to SARS’ Tax Exemption Unit (“SARS TEU”) for your entity to be registered as a PBO. Organisations and companies with PBO status get the privilege of tax exemption. Certain of these PBOs may also qualify for s18A approval which enables the qualifying PBO to provide tax exemption certificates to donors.
Section 30 of the Income Tax Act, No 58 of 1962 (“the Act”) prescribes the requirements for an organisation to be approved as a PBO, which include the carrying on of one or more of the listed public benefit activities. Public benefit activities (“PBAs”) are listed in Parts I and II of the Ninth Schedule of the Act.
Further requirements to qualify for PBO approval:
- The PBO must be carried out with altruistic or philanthropic intent;
- The PBO may not promote the economic self-interest of any employee or person in a fiduciary position (directors);
- and the PBAs engaged in must be for the benefit of, or widely accessible to the general public at large.
- Can all PBOs automatically provide section 18A tax exemption certificates to their donors?
Even though I have actually answered this question already, it bears repeating because it is the question I am asked most often concerning PBOs.
The answer is no. Not all PBO’s can give section 18A tax exemption certificates to donors simply because not all PBOs are granted the added approval for s18A by SARS TEU.
A PBO is primarily granted the privilege of tax exemption if they engage in specified public benefit activities and meet the further requirements as well. However, SARS only grants the additional s18A certificate approval to the PBOs whose activities can be proved to fit more squarely into Part II of the Ninth Schedule and which meet certain further requirements as well.
SARS does not readily grant s18A approval, but must be convinced of the qualifying PBAs of the PBO. It is therefore important to get professional assistance to do the application so that you have the best possible chance of getting s18A if you are a qualifying PBO. I have been doing these applications for several years and I am often approached by existing PBOs who could qualify but who did not make a good application and therefore were only granted PBO status with tax exemption but not s18A approval.
- If you applied previously and were granted PBO status with tax exemption but not s18A approval, can you apply again?
Yes, you can.
- Can an Attorney handling the application on your behalf guarantee s18A approval?
No, they cannot and should not because it is granted at SARS Tax Exemption Unit’s discretion. But they can assist you, from their experience to make the best possible application depending on your PBAs and vision and therefore greatly improve your chances of receiving it.
Conclusion:
As mentioned in one of my first articles about non-profits “Shall we talk about Non-Profits? ” I believe in the intrinsic value of non-profits and support what they add to our South African landscape. The generosity of our people is incredible and fuels many of the amazing entities that collectively impact the lives of millions of South Africans on a daily basis. Thank you for supporting reputable non-profits and for considering starting one to add even more value to our people.
Disclaimer: the information contained in this article is educational and not intended as legal advice. You should always consult with an Attorney for advice and assistance pertaining to your specific circumstances.