Non-Profits Organisations (NPOs) or charities involved in trading activities or income generation received a welcome tax relief on 20 October 2005. The Non-Profit Consortium (NPC) - the only NPO that deals exclusively in non-profit law in South Africa - presented an oral submission to the Finance Portfolio Committee on the Draft Revenue Law Amendment Bill 2005. NPCs submission was successful in calling for the relaxation of penalties imposed on NPOs that exceeded the limits set on trading activities.
The Act in its current form allows PBOs to conduct trading activities within certain restrictive parameters. Organisations that conducted trading activities unrelated to their purpose could only generate income to the maximum amount of R25 000 or 15 per cent of their gross receipts. Related trading activities were permitted provided it was done on a cost recovery basis. Trading activities of an occasional nature (for example a fun run, fete and gala dinners) are also permitted.
Organisations that failed to comply lost their Public Benefit Organisation (PBO) status and donor deductibility status, having serious implications for many NPOs financial sustainability. The loss of PBO status was a disproportionately serious penalty, therefore NPC advocated for organisations to be taxed for exceeding the restrictions, rather than the loss of these tax benefits.
After months of hard work, the South African Revenue Services (SARS) and National Treasury incorporated the amendments proposed by NPC, in the Amendment Bill. The Finance Portfolio Committee has now accepted these amendments.
NPC has welcomed the fact that these amendments bring some relief, in that they do away with the ‘all or nothing’ approach that resulted in the loss of tax exempt status for organisations that exceeded the restrictions”, says NPO Law Programme Manager, Tessa Brewis.
Other areas raised in the submission included the need for a uniform rate of taxation for all PBOs. Currently, charitable Trusts are taxed at a higher rate. It was also pointed out that the amendments did not address the plight of smaller organisations. Moreover, the amendments need to be aligned to the reporting requirements in the Non-profit Organisations Act.
The Chairman of the Portfolio Committee responded that the submission clearly outlined the issues at stake, and that it would receive their attention. Another Member of Parliament complimented NPC on the high quality of the submission.
For further information, please contact NPO Law Programme Manager, Tessa Brewis on +27 21 422 3413.
The Non-Profit Consortium
1st Floor, Horizon House
15 Pepper Street
Tel: +27 21 422 3413
Fax: +27 21 422 3329