Nine requirements your PBO must meet to be tax-exempt
If you want your PBO to get tax
exemption, make sure your organisation's constitution complies with the following nine requirements of the Income Tax Act:
The organisation's sole or principal object must be to carry on one or more public benefit activities. These activities must be carried on in a non-profit manner and with an altruistic or philanthropic objective, says the Practical Tax Loose Leaf Service
In addition, they mustn't be intended to directly or indirectly promote the economic self-interest of any fiduciary (person in relationship of trust) or employee, other than by reasonable remuneration.
Each activity carried on by the organisation must be for the benefit of, or must be widely accessible to, the general public at large. The activities can't be for small and exclusive groups.
You must submit a copy of your organisation's constitution or other written instrument which establishes the organisation to SARS. This will form part of your application.
At least three people, who aren't connected to each other, must accept the fiduciary responsibility (i.e. relationship of trust and confidence) of the organisation. No single person may directly or indirectly control the decision making powers relating to the organisation.
Your constitution must prohibit the direct or indirect distribution of its funds to any person other than for furthering a public benefit activity. It must also state that funds are required to be used solely for the organisation's objects.
In the case of an organisation that's incorporated, established or formed in South Africa (this doesn't apply to foreign organisations wishing to register as PBOs in South Africa), the constitution must state that when your organisation is dissolved, its assets will be transferred to any other PBO. Or any central or provincial sphere of government that's exempt from paying income tax
under Section 10 of the Income Tax Act.
Your constitution must prohibit the organisation from accepting any donation that may be revoked by the donor for reasons other than a material failure to conform to the donor's purposes and conditions, says the Practical Tax Loose Leaf Service
If you amend your constitution, you must submit a copy of the amended constitution to SARS.
Your constitution must prohibit the organisation from directly or indirectly using its resources to support; advance or oppose any political party.
If you want your PBO to be exempt from tax
, make sure it meets these requirements. Don't forget that your organisation will only enjoy preferential tax
treatment after it has applied for and been granted approval as a Public Benefit Organisation by the Tax Exemption Unit (TEU).