Registering a Non-Profit entity: Part 4- The Public Benefit Organisation (PBO) continued
In our previous article we started looking at some of the questions that we are most frequently asked concerning Non-Profits, Public Benefit Organisations (PBOs) and s18A. In this article I will continue to answer your questions.
1. How does section 18A benefit a qualifying entity?
A section 18A privilege for an entity is its ability to give a valid tax exemption certificate to a donor for their donations towards the entity’s Public Benefit Activities (PBAs). This might encourage large donations from businesses or individuals who are attracted by the tax deduction.
2. What is the difference between a PBO and a PBA?
PBO stands for Public Benefit Organisation and PBA stands for Public Benefit Activities. All Public Benefit Organisations engage in certain activities for the public benefit and which activities are specified in the Income Tax Act, No 58 of 1962.
3. Do all PBAs qualify for s18A?
No. For example churches engage in many Public Benefit Activities , but these particular activities usually only qualify for tax exemption and not s18A. Churches are typically not granted s18A. My advice to a church leader whose church also engages in qualifying PBAs for s18A, is to register a separate entity for those qualifying PBAs as then they might have a better chance of attaining s18A for the separate entity. However, should they be granted s18A for those qualifying PBAs within the separate entity, they must be aware that they would not be allowed to also give s18A certificates to any entity/person that donates or gives offerings to their church entity. Tithes and offerings do not qualify for s18A certificates.
3. Is there any value for an entity that would not qualify for s18A to apply for PBO status?
Absolutely! As mentioned in the previous article, obtaining tax exemption status for the entity itself is the primary goal of all PBO applications. If you obtain this it means your entity will not be liable for tax and that is certainly a great advantage to have.
4. When should I commence with the PBO application?
I would recommend starting the application as soon as you have registered your entity as an NPC or NPO. If you delay you could run into a few problems such as:
- You will have to account to SARS for the delay in application;
- You might not be allowed to backdate your application to the date of registration of the entity and therefore the entity could be held liable for tax (at the usual Companies rate) until the date of approval as a PBO.
6. What does the PBO application process look like?
- The process usually starts with a consultation with an attorney who specialises in PBO registration applications. This interview is vital for the Attorney to understand your intentions with creating the entity, to advise you regarding the best route forward, and to advise you regarding your chances of qualifying for either PBO tax exemption or PBO tax exemption with s18A.
- Depending on your registration documents, you may require a supplementary Memorandum of Incorporation or similar which the Attorney will draft.
- The Attorney will then prepare all the necessary forms and supporting documents, to make the most favourable application to SARS based on your entity’s unique vision, current and future plans and qualifying PBAs.
- Different attorneys have different approaches to this process, some handle it from a distance and others, myself included, have a more interactive approach in which the applicant is a participant to the application process and is also assisted with fine-tuning their own vision, values, identity and objectives. I find that this hands-on approach empowers the applicant to best comply with their own objectives and goals, as well as with SARS’ compliance requirements after registration.
- Once the application is ready the Attorney will book an appointment with SARS and lodge the application..
- SARS typically takes around three to four months to then process the application and respond.
I trust that this has been useful for you!
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.