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Inside this issue:

The PBO Number

The NPO number

Legal structure

Did you know?

Providing for a better future for orphans in SA

 

Quarter 2: 2013

 

 

THE PBO NUMBER

The SA Government gives tax incentives and rebates to those NPOs that have registered with South African Revenue Service as a public benefit organisation (commonly known as a PBO). An NPO that conducts public benefit activities (as listed in the Income Tax Act in a non-profit manner) and meets certain other requirements may apply for a PBO status which provides for various types of tax exemptions.

Partial Income Tax exemption

Whilst the PBO status offers full exemption of income tax on donations and other passive income streams of an organisation, many are under the mis-conception that business income 

Where a PBO earns business income above certain thresholds, these income streams become fully taxable like normal tax paying entities. More about this will be covered in a future issue.

Tax benefits to donors

In addition to the PBO getting tax benefits, its donors also benefit when donating to a PBO compared to any other organisation. By donating to a tax-exempt PBO, the donor may achieve, amongst others, the following tax benefits:

• 20% Donations tax

• 20% Estate duty

• 10 – 14% capital gains tax

Only a PBO status unlocks the significant tax benefits available to the sector!

 

The NPO number

Registration as an NPO and obtaining an NPO number from the Department of Social Development (DsD) is voluntary and is mainly required to show the organisation’s credibility and transparency in its reporting.

For certain legal structures, it has however become “compulsory” because many banks will not open a banking account for a Voluntary Association if it does not have an NPO number. This stems from the fact that a non-profit Trust and an NPC are issued registration numbers from the Master of the High Court and CIPC respectively.

Registration with the DsD is not dependent on the type of legal structure a non-profit organisation may operate within and all 3 legal formats discussed in our previous article may qualify.

In addition, some government departments and donors (like the Lotto) require the NPO to have an NPO number as a condition for funding. Many donors place reliance on the NPO status when making grants even though the organisation may have a valid tax-exempt PBO status from SARS.

An NPO number gives the following benefits:

·       Public recognition;

·       Promotes good standing;

·       Transparency and accountability in activities; and

·       Promotes access to government and corporate funding.

There is also quite often a common misunderstanding that the NPO number will allow the organisation to be tax exempt and/or allow its donors to obtain tax deductions through donations.  Tax benefits are only achieved by obtaining a Public Benefit Organisation number from the South African Revenue Service (see article below).

Recently, thousands of NPOs were found to be non-compliant by the DsD due to non-submission of their Narrative Reports and Financial Statements as required annually by the DsD. Given that many donors still rely on the NPO number these organisations may lose out on potential donor funds.

Contact TPC to check your status and if necessary to get your NPO re-registered.

 

Legal structure

A non-profit organisation (NPO) can operate within one of the following legal structures:

·       a Non-Profit Company (NPC) - previously known as a Section 21 company, or

·       a non-profit trust; or

·       a voluntary association. 

In this issue, we will focus on the NPC in line with recent

 legislative changes as a vehicle to operate within.

An NPC is governed by the Companies Act of 2008 (the New Act) which came into effect on 1 May 2011.  This Act which replaced the 1973 Companies Act (the Old Act) attempts to simplify the rules pertaining to the formation, management, governance and reporting of the NPC.

Reserving a Name

The name reservation can be undertaken concurrently with the NPC registration, and should the name be unavailable, the company registration number would be allocated as the NPC name.  This is to prevent significant delays in the registration process.

Previously, the words “Association incorporated not for gain” were affixed to the name which resulted in significant confusion as many interpreted the entity to be an unincorporated voluntary association.

The New Act requires the letters “NPC” be affixed to the name. e.g. HELPING HANDS NPC

Founding documents

The New Act replaces the Memorandum and Articles of Association with a single document - the Memorandum of Incorporation (MOI). The MOI contains the rules and regulations of the Company, the rights and duties of the directors and members and other matters governing the NPC.

Directors/Incorporators

The NPC may have a minimum of three incorporators. The old Act required a minimum of seven subscribers which caused various complications to the Company in terms of basic administrative processes (e.g. opening of bank accounts etc). The initial directors are the incorporators. Directors have to be appointed onto the board and this appointment has to be confirmed by CIPC.

Members

The concept of a membership structure has now become optional compared to the Old Act which required a membership structure before a section 21 company could be formed.

The NPC can either have a membership structure or not. If the NPC does opt for a membership structure, a register of the members and contact details should be maintained.

Annual General Meetings (AGM)

A very welcomed change and a sigh of relief for most NPC’s is that AGM’s are not compulsory under the New Act. Should an NPC however wish to hold compulsory AGMs this should be included in its founding documents.

Statutory Audits

The New Act has laid down various criteria to be achieved before a company has to compulsorily require a statutory financial audit. It has further introduced the concept of an independent review. This relaxation, we submit, will produce considerable cost savings for the NPC and lessen the administrative burden imposed by statutory audits. More about statutory audits and independent reviews will be covered in a future issue.

Amendment to existing Memorandum and Articles of Association

The Memorandum and Articles of existing section 21 companies are effective until 30 April 2013 (in two months time). From 1 May 2013, where a provision in the existing Memorandum is in conflict with the New Act, the provisions of the New Act will take precedence.

As mentioned, the changes seek to make it easier to conduct an NPO’s activities through an NPC by deeming many of the requirements (compulsory under the Old Act) to now be optional (under the New Act).

It is important to point out however that where the existing Memorandum and Articles still contain these compulsory provisions – e.g. AGM’s or Statutory Audits (and all Memorandums will), the NPC will have to conform to its existing Memorandum and cannot take advantage of the benefits of the New Act.

Hence it is imperative the existing Memorandum and Articles be amended to take advantage of the benefits allowed under the New Act.

Contact us to see how we can amend your existing Memorandum and Articles and ensure the smooth functioning of you NPC.

 

Did you know?

·         The MOI has to comply with the provisions of section 30 of the income tax act for the NPC to obtain a tax-exempt PBO status.

·         As an NPC is a “juristic person” it can acquire assets and enter into agreements in its own name. The directors are the individuals who ‘action’ transactions on its behalf.

·         The letters “NPC” make it easy for everyone to know that they are dealing with a Non Profit Company.

·         An NPO number gives the organisation credibility in the eyes of its donors but does not give the organisation any tax benefits.

·         Only a tax-exempt PBO status granted by SARS unlocks the various tax incentives available to NPOs.

·         A PBO must submit its Tax Return and Annual Financial Statement to the SARS Tax Exemption Unit annually. Should the PBO fail to do so, it could lose its PBO status and related benefits.

 

“PROVIDING FOR A BETTER FUTURE FOR ORPHANS IN SOUTH AFRICA”

(Article provided by: Iqraa Trust South Africa)

The Orphans Endowment Fund (OEF) has been established by Islamic Relief Worldwide South Africa in partnership with Iqraa Trust and Albaraka Bank to provide a secure and self-sustaining source of funds specifically to support orphans and vulnerable children in South Africa.

The OEF provides for the needs of an increasing number of orphaned children. With more than 2 million orphans and 1000 people dying daily in South Africa from the aids pandemic,

 the need for long term initiatives to meet the needs of orphaned children is very urgent. The security of a home, someone who cares for them, good nutrition, better living conditions and education can be provided to these children.

The OEF is the ideal vehicle for generating a continuing source of funds for the purpose of providing assistance and support for the most vulnerable members of our community because only the income generated on the funds you invest in the OEF will be used. The capital remains intact.

How The Orphans Endowment Fund Works

For as little as R 500, which you can contribute as a lump sum or in installments, you can acquire an Orphans Endowment Fund Share for which you will receive an Endowment Certificate. After deducting an administration fee of R 50 the balance of R 450 will be invested in Albaraka Bank.

At the end of each financial year, the profits will be used as follows:

·         approximately 80% will be used to address the basic needs, and development of the orphans and vulnerable children.

·         approximately 10%  will be added to the original capital sum in order to increase and preserve its value.

·         approximately 10% will be utilised for the administration of the OEF. 

 The Opportunity To Support The Orphans And Earn Ongoing Reward For Your Generosity

A donation to the Orphans Endowment Waqf Fund will serve to provide funding for the support of orphans on a sustainable basis and will be a source of ongoing reward for you the donor because the funds you donate will be invested and only the income will be used to provide support for orphans and vulnerable children.