5 April 2004

Income Tax and NGOs

The general rule is that a public benefit organisation ( PBO ) would pay income tax on its net taxable income. That is, the income remaining after deducting expenditure incurred in running the PBO

PBO THAT HAS NOT APPLIED FOR TAX EXEMPTION

SITUATION ONE

A donor normally gives to the PBO from income on which he has already paid income tax. Hence, when the PBO receives this “after-tax” donation there is no income tax liability on the part of the PBO.

SITUATION TWO

The PBO receives donation from Donor but the Donor has claimed the donation as an income tax deduction.Where the PBO receives income that has been claimed as a tax deduction by the donor, the PBO would be liable to pay income tax on the whole amount , that is, the PBO cannot deduct its expenses from the donation (claimed by the Donor as a tax- deduction) received.

NGO that is tax-exempt

A tax-exempt PBO, because of its tax-exempt status does not pay any income tax – even if the donation it receives has been claimed by the donor as a tax deduction. The benefit to the tax-exempt PBO is saving of the 30% to 40 % income tax. The businees income cannot exceed 15% of the NGOs gross income.

    Voluntary Association Trust Section 21 Company
Business Income   100 000 100 000 100 000
Donations and Grants   10 000 50 000 50 000
TOTAL INCOME   110 000 150 000 150 000
LESS : EXPENDITURE        
Administration 50 000      
Public Benefit Activities 800 000 850 000 110 000 110 000
SURPLUS   250 000 40 000 40 000
TAX PAYABLE   NIL NIL NIL
Zero Tax because of tax-exempt status.

Other Tax Benefits

The above merely illustrates the upper hand you would gain by being a tax-exempt PBO. There are many more exemptions allowed in the following forms of tax:

  • Donations Tax
  • Estate Duty
  • Capital Gains Tax (CGT)
  • Transfer Duty
  • Stamps Duty
  • Skills Development Levy
  • VAT

The complete reference guide contains details about the various benefits.

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