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 (For the full list of eligible activities, refer to SARS official guidance). Note that religious, cultural and sporting activities are excluded. Please refer to the SARS website for more information.

Step-By-Step Application Process

Pre-Application Checklist

Before you begin, ensure the following:

• Your organisation is actively conducting activities listed under Part II of the Ninth Schedule (welfare, healthcare, education, etc.).
• Your founding documents explicitly state the necessary clauses, and your financial statements and FICA documents (for board members) are up to date.
• Your records now include additional donor details as required by SARS (see below).

How to Apply: Step-By-Step Application Process

Step 1: Completion of Form EI 1

Complete SARS’s prescribed application form EI 1, providing accurate details about your organisation, the activities you conduct, and the specific PBOs you 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, includes the newly mandated donor details 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 strictly to your PBO’s constitutional stipulations.
• Utilize donations solely for approved activities.
• Maintain precise records and submit annual reports that detail how funds are used to benefit the public.

2023 Update:

The recent changes in in SARS regulations for Section 18A tax receipts, effective from March 1, 2023, introduced several new requirements for Public Benefit Organizations (PBOs). Notably, your Section 18A tax certificates must now include detailed donor information, such as the type of donor (individual, company, trust, etc.), identification details, tax reference number, and contact information. For a deeper understanding, you can refer to our post documenting the new Section 18A requirements.

For more details see our SARS Compliant Section 18A Receipting system.

2024 Update:

For PBOs issuing Section 18A certificates, SARS now requires that all certificates issued from 1 March 2023 to February 2024 be compiled into an IT3(d) data submission form. This submission is essential for donors to claim their tax deductions. The process is designed to simplify verification by SARS while ensuring compliance with the latest regulatory standards.

Compliant IT3(d) submissions ensure that SARS can verify donor information, enabling tax deductions. Failure to submit these forms may prevent donors from claiming their deductions and could affect your organisation’s credibility.

Learn about our automated SARS IT3D submissions service offering.

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.