Celebrations of UNESO’s (United Nations Education, Scientific and Cultural Organization) World Book and Copyright Day on the 23rd April 2019, has placed literacy, literature in indigenous languages and education at the centre of global discussions.
Education in South Africa plays a significant role in society. and Educational organisations (i.e. private and public schools, higher learning institutions and non-profit organisation in the education industry) share the responsibility with Government for the social and development needs of the country. National Treasury has highlighted the key role that education plays in the National Development Plan (NDP) and emphasised that education lies at “the heart of improving the country’s economic potential.”
Government has implemented preferential tax treatment designed to assist non-profit organisations by augmenting their financial resources.
The preferential tax treatment for not for profit organisations is not automatic and organisations that meet the requirements set out in the Income Tax Act, 1962, must apply for this exemption. If approved by SARS, the organisation is registered as a Public Benefit Organisation (PBO) and allocated a unique PBO reference number. It is important to note that an organisation that has a non-profit motive or is registered as a non-profit organisation (NPO) or Non Profit Company (NPC) does not automatically qualify for preferential tax treatment. An organisation will only enjoy preferential tax treatment after it has applied for and been granted approval as a Public Benefit Organisation (PBO) by the Tax Exemption Unit (TEU).
Notably, educational organisations have expanded their income streams in order to become sustainable, competitive and meet infrastructural and resource demands. The income streams referred to may include:
- Sale of uniforms, textbooks, stationery, sporting equipment and tuckshop sales;
- Funds from alumni organisations; and
- Income from fund raising events and activities.
The educational organisations’ Public Benefit Activities (PBAs) and income streams need to be closely monitored to ensure taxable income outside of the approved PBO does not result in taxable income.
While for VAT purposes, educational organisations with other income streams may not be exempt from VAT. In our experience, the activities and other income streams are often overlooked, for VAT purposes, as they are carried out on behalf of the educational organisation, by persons other than the management of the educational organisation (e.g. fund-raising committees).
It follows that it is important and the responsibility of the educational organisations to monitor their activities and income streams in order to determine if they may be required to register and account for VAT at 15% or pay income tax.
This article was written by, Marcus Botha, Head of Corporate Tax and Yumna Dajee, Assistant Manager, VAT and Customs
Picture courtesy : http://bti.edu