Public Benefit Organizations and Tax Implications

A Public Benefit Organisation (PBO) is a section 21 (Companies Act) company, a trust, or an association of persons; of which the sole object is to carry on one or more “public benefit activities” in a non-profit manner; and carries on all (or substantially all) such activities in South Africa. 

A “public benefit activity” is defined as any activity which is of a “philanthropic or benevolent nature, having regard to the needs, interests and well-being of the general public.” 

The PBO must submit to the Commissioner a copy of its constitution (as well as copies of any amendments thereto), will or other written instrument in terms of which it has been established.

Restrictions on trading activities 

A PBO is prohibited from carrying on any business undertaking or trading activity, unless, the gross income from trade does not exceed the greater of 15% of gross receipts or R25 000; the trading activity is “integral and directly related” to the PBO’s sole object and is substantially directed towards cost recovery and will not cause unfair competition in relation to taxable entities and the trading activity is one approved by the Minister. 

Tax deductible donations (Section 18A receipts) 

Qualifying entities, that have been approved as PBOs, may obtain additional approval to issue tax deductible donations to donors. Application for S18A status can be done simultaneously with the application for tax exempt institution status. 

A taxpayer who made a bona fide donation to an approved S18A organisation, is entitled to a deduction from their taxable income, provided they have the S18A receipt issued by the organisation. 

VAT Implications 

An approved PBO may be classified as a welfare organisation under the VAT Act. 

In order to qualify as a “welfare organisation”, a PBO must carry on, or intend to carry on any of the welfare activities that fall under the following headings –  

  • Welfare and Humanitarian; 
  • Health Care; 
  • Land and Housing; 
  • Education and Development; or 
  • Conservation, Environment and Animal Welfare. 

A welfare organisation is entitled to register for VAT purposes and to deduct input tax in respect of any approved welfare activities which it carries on, even if it does not charge any consideration.