5 April 2004

New laws in taxation and how they affect your NGO

Non-profit Organisations (NGOs), also known as public-benefit organisations(PBOs), play a major role in any society. The South African taxation system has undergone many changes that now regularise NPOs, like religious, educational, welfare, charitable and sports bodies and associations.

The object of the Non-profit Organisations Act (NPO Act), is to regulate and maintain standards of governance, transparency and public accountability in the non-profit sector.

The Income Tax and NPO Acts prescribe what has to be included in an NGO’s constitution or trust deed before the NPO(non-profit organisation) can be granted a tax-exempt status. They also outline the annual reporting requirements for the NGO to maintain its tax-exempt status

Section 30 of the Income Tax Act sets out

  • a category of NGO’s , known as the public benefit organization (PBO) has been introduced. Only an NGO that falls within this category will get tax exemption. See definition in the reference guide.
  • what must be included in founding document. If these are excluded, the NGO will NOT get tax exemption status.
  • the NGO must undertake “public benefit activities”. This list (now part of the tax act) is very important. . Only an NGO that falls within this category will get tax exemption. See definition in the reference guide.

For a PBO to enjoy a favourable tax position, it has to conform to the following :

  • It has to be an approved NGO
  • Undertake public benefit activities as defined in the Income Tax Act
  • Its founding document has to provide conform to various conditions
  • It has to undertake its activities in a non-profit manner
  • It can undertake limited business activities
  • On its dissolution its assets have to go to similar approved NGOs

he NPO Act also sets out various requirements that the NGO has to comply with

  • Its founding document has to provide for various conditions. See the reference guide for details. If these are excluded, the NGO will NOT get an NPO number.

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