The Basics: How to become a Public Benefit Organisation

Being registered as a Public Benefit Organisation, or PBO, is an excellent method to not only make your organisation more financially sustainable, but it is also a great tool to attract new donors, supporters and members.

To be a registered PBO, your organisation would have been required to jump through several hoops set out by the tax authority, the South African Revenue Service.

Secondly, your donors, supporters and members will also be eligible to submit the value of their donation to SARS for a tax rebate. For companies this could mean a reduced overall tax bill and for individuals, they might get some money back from the taxman.

READ: Basic Guide to Income Tax Exemption for  Public Benefit Organisations.

This guide has been prepared to assist organisations in understanding the basic requirements to obtain and retain approval as a public benefit organisation.

Who can apply for PBO status?

NPO specialist, qualified accountant and tax practitioner, Cheryl-Lynn Freeman, provides some basics as it relates to NPO tax obligations and pertinent information as it relates to applying for your PBO number. Source: MzansiBiz

A non-profit organisation, be it a trust, a non-profit company or voluntary association, can apply for the status of “public benefit organisation” (PBO).

Among other requirements, these organisations’ sole purpose must be to undertake one or more public benefit activity.

PBOs may not use their resources to directly or indirectly support, advance, or oppose any political party, but are not restricted from lobbying. They are entitled to a broad range of fiscal benefits, including a partial income tax exemption, an exemption on donations tax, and, for some, an exemption on transfer duty on immovable property.

To qualify as a public benefit organisation (PBO), an organisation must comply with all of the following requirements of Section 30 of the Income Tax Act:

  • It must be a non-profit company formed and incorporated under the Companies Act, a trust established in the Republic and registered with the Master of the High Court whose founding document is a trust deed, a voluntary association under the Non-Profit Organisation Act.
  • Its sole or principal objective must be to carry out one or more public benefit activities as listed in the 9th schedule of the act; it cannot pursue any other principal objectives.
  • The activities must be carried out in a non-profit manner and with altruistic or philanthropic intent. No activity can promote the economic self-interest of any fiduciary or employee, other than reasonable remuneration to employees or officers.
  • Each of the organisation’s activities must be for the benefit of, or widely accessible to, the general public at large.

Some activities that are tax exempt include:

  • welfare and humanitarian
  • healthcare
  • land and housing
  • education and development
  • religion, belief or philosophy
  • cultural
  • conservation, environment and animal welfare
  • research and consumer rights
  • sport

To apply for PBO status, organisations must submit their completed application forms with supporting documentation at the local South African Revenue Service (SARS) branch office as part of the tax registration process.

I want my donors to be able to claim their donations back from SARS.

Small Business and NPO Specialist, Cheryl-Lynn Freeman, shares the SARS requirements for non-profit organisations that wish to register for PBO and S18A tax status. Source: Mzansibiz

One sure way to grow your donor, supporter or membership base is by offering those who give cash or kind the opportunity to deduct the donation off their tax bill.

An individual or company is entitled to deduct from taxable income a donation (in cash or in kind) to a PBO carrying out specified public benefit activities. These organisations are sometimes referred to as Section 18A’s, which effectively means the organisation is a public benefit organisation with donor-deductible status. The donation must be supported by a receipt issued by the PBO and the donation cannot, for any given fiscal year, exceed 10% of the taxable income of the taxpayer in order to qualify for this deduction.

READ: Tax Deductible Donations: Basic Principles for S18A Approved Tax Exempt Institutions.

A section 18A tax deductible receipt is an official document issued by a Section 18A-approved institution to a donor who makes a qualifying donation. It serves as evidence of the donation made and potentially enables the donor to claim a tax deduction from their taxable income on submission of the income tax return.