Are you running a nonprofit organisation in South Africa and looking to enhance your fundraising abilities? Securing a Section 18A Public Benefit Organisation (PBO) status with the South African Revenue Service (SARS) could be a game-changer for you. When donors know that their contributions are tax-deductible, they are more inclined to give—and give more generously. This ultimate guide is designed to simplify the application process, assist you in compliance, and take you through every step to obtain a Section 18A PBO status.
Understanding Section 18A PBO Status
What is Section 18A PBO Status?
Section 18A PBO status refers to a special designation that allows certain organisations to issue tax-deductible receipts to donors. These receipts can then be used by donors to claim tax deductions on their income tax returns, encouraging philanthropy and supporting charitable activities.
Who Can Qualify?
The organisations that may qualify for this status include PBOs, certain government departments, and other listed entities engaged in eligible Public Benefit Activities (PBAs) in South Africa. Eligible activities cover a range of sectors from welfare and humanitarian efforts to health care, education and development, conservation, and more. Religious, cultural and sporting activities are excluded.
Step-By-Step Application Process
Pre-Application Checklist
- Make sure that your organisation is conducting activities listed under Part II of the Ninth Schedule. These include welfare, healthcare, education, housing, animal welfare and conservation efforts.
- Ensure your organisation complies with all regulations and that the necessary clauses are explicitly stated in your founding documents.
- Have your financial statements, FICA documents of your board members and other pertinent documentation up to date.
How to Apply
Step 1: Completion of Form EI 1
Complete SARS’s prescribed application form EI 1, providing details about your organisation, the activities you conduct, and the PBOs you aim to support with the donations received.
Step 2: Submission of Required Documents
Submit the EI 1 form along with the supporting documents to SARS. The supporting documents include:
- Bank Statements
- Your organisation’s founding document that clearly outlines your PBAs.
- Recent financial statements and narrative reports of your organization’s activities.
Step 3: Await Confirmation
Once SARS has processed your application, they will issue a formal letter confirming or denying your Section 18A status. It’s important to note that the effective date for issuing tax-deductible receipts will be the date of the SARS approval letter.
Post-Approval Compliance
- Ring-fencing Requirements: Keep donations for Section 18A activities separate and clearly recorded.
- Distribution Requirement: If your organisation is a conduit PBO (i.e. provides funds to other PBOs) , remember to distribute at least 50% of the donations within 12 months of the assessment year they were received.
- Obtain and Retain an Audit Certificate: Yearly audits confirming the proper use of donations are obligatory for 18A PBOs that provide funds to 18A PBOs and non-18A PBOs.
- Issue Valid Section 18A Receipts: Ensure that each receipt has an exemption reference number, the amount/nature of the donation, and complies with any additional conditions set by SARS.
What if Approval is Not Granted?
In cases where approval is denied, SARS will provide reasons for the denial. Organisations have the right to object and appeal this decision.
Maintaining Your PBO Status
Once you gain Section 18A status, it’s important to maintain compliance with all the regulations to avoid penalties or the revocation of your status. Adhere to the PBO’s constitutional stipulations, utilize donations appropriately, and maintain proper records.
Conclusion
Achieving Section 18A PBO status from SARS is a challenging but worthwhile endeavour for South African nonprofits. By following the steps outlined above and maintaining meticulous records, your organization can benefit from greater funding opportunities and offer donors an incentive that could potentially increase the volume and value of donations you receive.
