Free NPO ANALYSIS

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      General Information

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      Registeration Info

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      Legal Info

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      Income

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      Donor Deduction

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      Tax Complaince

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    General Information

    General Information
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    There is generally confusion around the difference between Non-Profit Organisations (NPOs), Non-Profit Companies (NPCs), Community Based Organisations (CBOs) and Public Benefit Organisations (PBOs) etc.

    To clarify, in its most basic form, a non-profit activity or organisation is any activity or organisation which is:

    • Voluntary (formed out of concern to assist the greater public)
    • Not for profit (No distribution of profits or surpluses to shareholders or members. Money is used to
    further the aims of the activity or organisation)
    • Not self-serving in aims and values (Acts on concerns that affect society as a whole)

    For an NPO to be established, it must constitute itself within a legal structure: i.e. either
    1. A Non-Profit Company (NPC) or previously known as a Section 21 company, or
    2. A Non-Profit Trust, or
    3. A Voluntary association


    Registration Information
    To proceed for a better analysis we need to know about your Organisation’s register information properly.










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    The purpose of registering an organisation as an NPO with the DSD is that:
    • It Improves the credibility of the NPO because its accountable to a public office.
    • It assists in receiving grants and donor funding from government.

    Note:
    1. This registration is a status granted to an organisation rather than the establishment and registration
    of a legal structure as noted in the previous section.
    2. This is a voluntary registration.
    3. This registration does not provide any tax benefits to the NPO.

    An NPO may apply to SARS for tax exemption as a Public Benefit Organisation (PBO), if it meets the
    requirements of the Income Tax Act.
    As is the case with the NPO registration (with the DSD), the PBO registration is also voluntary. Further, the
    organisation does not need to be registered as an NPO with the DSD in order to be approved as a PBO
    with SARS.
    The main reason why an organisation will want to be registered as a PBO is that a PBO is entitled to
    various tax benefits which include:

    Note:
    1. To qualify for registration as a PBO, the sole or principal object of an organisation must be the carrying
    on of one or more Public Benefit Activities (PBA’s). These activities are listed in Part I of the Ninth
    Schedule to the Income Tax Act. 
    2. The founding documents of the organisation must also comply with certain minimum requirements
    prescribed by SARS. 
    3. Like in the case with the DSD, this registration is a status granted to an organisation rather than the
    establishment of a legal structure as noted in the previous section.

    The PAYE or ‘pay as you earn’ – refers to income tax which is deducted from an employee’s salary
    before they receive it. This is the manner whereby most employees pay income tax.
    According to law, an employer (i.e. the NPO) must register with the SARS within 21 business days after
    becoming an employer, unless none of the employees are liable for income tax.

    The Unemployment Insurance Fund (UIF) gives short-term relief to workers when they become unemployed
    or are unable to work because of maternity, adoption leave, or illness.
    Any employer, who is registered with SARS for PAYE also needs to register to pay UIF contributions.
    Note: There are no exemptions provided to PBO’s for the above taxes.

    ETI is an incentive aimed at encouraging employers to hire young work seekers. The aim of the ETI is to
    facilitate the increased employment of young work seekers.

    The benefits of the ETI are:
    • It will reduce the employers cost of hiring young people through a cost-sharing mechanism with
    government, by allowing you to reduce the amount of Pay-As-You-Earn (PAYE) you pay while
    leaving the wage received by the employee unaffected.
    • Employers will be able to claim the incentive for a 24 month period for all employees who qualify.
    • The incentive amount differs based on the salary paid to each qualifying employee and whether
    the qualifying employee was employed after the inception of the ETI programme on 1 October
    2013. ETI may only be claimed for a total of 24 qualifying months.

    An individual is a qualifying employee if he or she:
    • Has a valid South African ID, Asylum Seeker permit or an ID issued in terms of the Refugee Act
    • Is 18 to 29 years old
    • Is not a domestic worker
    • Is not a “connected person” to the employer
    • Was employed by the employer or an associated person to the employer on or after 1 October
    2013 and
    • Is paid the minimum wage applicable to that employer or if a minimum wage doesn’t apply, is paid
    a wage of at least R2 000 (where the qualifying employee was employed for 160 hours in a month)
    and not more than R6 000 remuneration.

    SDL is a levy imposed to encourage learning and development in South Africa and is determined by an
    employer’s salary bill. The funds are to be used to develop and improve skills of employees.

    Any employer (i.e. the NPO), who is registered with SARS for PAYE also needs to register to pay SDL.

    The following organisations are however exempt from paying SDL:
    • Any employer whose total remuneration due to all its employees over the next 12 month period won’t
    exceed R500 000.
    • A PBO is exempt from the payment of SDL if it only carries on PBAs 1, 2(a), 2(b), 2(c), 2(d) and 5 of Part I of the Ninth Schedule to that Act or solely provides funds to a PBO that solely carries on the above PBAs.

    PBO’s who carry on certain activities can register for VAT voluntarily even if they earn no trading
    income. This may be advantageous to the organisation as input VAT incurred on expenses may be
    claimable from SARS.

    These activities are categorised as follows:
    • Welfare and Humanitarian
    • Health Care
    • Land and Housing
    • Education and Development
    • Conservation, Environment and Animal Welfare

    Note:
    This a complex area of VAT law and expert guidance may be required to determine whether your PBO
    qualifies for special dispensations.

    The Compensation Fund provides compensation to employees who are injured or contact diseases
    through the course of their employment.
    All employers must register with the Workmen’s Compensation Fund so that their workers can claim
    compensation for occupational injuries and diseases.

    The DOL requires all employers be registered for Unemployment Insurance and that employers submit
    monthly U-filing returns (UI-19).

    This is a separate return which organisations are required to file even if UIF is submitted and paid to the
    SARS. No additional payment is required to be made, however the objective of this return is to lodge UIF
    information per employee to the DOL without which employees of the organisation may be unable to
    claim UIF should the need arise.

    Legal Information
    To proceed for a better analysis we need to know about your Organisation’s legal information properly.





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    In terms of Section 30 of the Income Tax Act, a PBO must, at all times, have at least three persons
    who are not connected persons in relation to one another to accept fiduciary responsibility for that PBO.

    No single person may have the ability or authority, either directly or indirectly, to control the decision-
    making powers of the PBO.

    In terms of Section 17(1) of the NPO Act, every registered Non Profit Organisation must, to the
    standards of generally accepted accounting practice —
    • keep accounting records of its income, expenditure, assets and liabilities; and
    • within six months after the end of its financial year, draw up financial statements, which must include at least
    1. a statement of income and expenditure for that financial year; and
    2. a balance sheet showing its assets, liabilities and financial position as at the end of that
    financial year.

    In terms of section 17(2) of the NPO Act, within two months after drawing up its financial statements,
    every registered Non Profit Organisation must arrange for a written report to be compiled by an Accounting Officer and submitted to the organisation stating whether or not—
    • the financial statements of the organisation are consistent with its accounting records;
    • the accounting policies of the organisation are appropriate and have been appropriately
    applied in the preparation of the financial statements; and
    • the organisation has complied with the provisions of this Act and of its constitution which relate
    to financial matters.

    In terms of Section 18(1) of the NPO Act, every registered Non Profit Organisation must provide
    the DSD with a narrative report of its activities in the prescribed manner together with its financial
    statements and the Accounting Officer’s report within nine months after the end of its financial year.

    All companies (including Non-Profit Companies) are required by law to file their annual returns with
    the CIPC on an annual basis, within a prescribed time period. The purpose for the filing of such annual
    returns is to confirm whether a company is still in business/trading/operating, or if it will be in business in the near future.

    Therefore, if annual returns are not filed within the prescribed time period, the assumption is that the
    company is inactive, and as such CIPC will start the deregistration process to remove the company from
    its active records. The legal effect of the deregistration process, is that the juristic personality is
    withdrawn and the company ceases to exist.

    Income
    To proceed for a better analysis we need to know about your Organisation’s income related information properly.



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    Section 10(1)(c)(N) of the Income Tax Act provides that trading income of a PBO will be subject to
    income tax if it:
    • is NOT integral and directly related to the sole or principal object of the PBO;
    • is carried out or conducted on a basis substantially the whole of which is NOT directed towards the
    recovery of costs; and
    • results in unfair competition in relation to taxable entities

    The income above will however be exempt If:
    • the amount does not exceed the greater of 5% of the total income of that PBO during the relevant
    year of assessment or R200 000.

    Further, if the income is of an occasional nature and undertaken substantially with assistance on a voluntary
    basis without compensation, then this trading income will also be exempt from income tax. These could
    include annual jumble sales, fundraising events such as fêtes, gala dinners, cake sales and other charity
    events etc.

    Note:
    This a complex area of tax law and expert guidance maybe be required to determine whether your PBO’S
    trading income is exempt from income tax or not.

    Donor Deduction
    To proceed for a better analysis we need to know about your Organisation’s Donor Deduction information properly.






    Related FAQ's

    Section 18A of the Income Tax Act allows a deduction for Donors who make donations to certain
    activities of a PBO. These activities are listed in Part II of the Ninth Schedule to the Income Tax Act and
    commonly referred to as 18A activities.

    Note: Not every PBO will be a Section 18A PBO.

    Therefore, whilst PBOs may gain approval as a PBO for conducting PBAs in terms of Part I of the Ninth
    Schedule, the Section 18A approval will only be granted if that PBO also carries out the activities as set out in Part II of that Schedule.

    Note:
    1. Sporting, cultural and religious activities are NOT 18A activities.
    2. Your PBO certificate will specifically state whether your organisation is registered as a section 18A PBO
    or not.

    Section 18A approved organisations are required to maintain proper control over the application and
    spending of donations received for which a section 18A receipt was issued.

    A section 18A receipt may be issued only for a donation which is solely and exclusively used for 18A
    activities conducted in South Africa.

    It is therefore imperative to track donations received and used for 18A activities separately to that received and used for non 18A activities.

    In order for a Section 18A receipt to be a valid receipt it must include the following details:
    • The reference number issued to it by the Commissioner for purposes of section 18A.
    • The date the donation is received.
    • The name and address of the section 18A-approved organisation issuing the section 18A receipt
    to which enquiries may be directed.
    • The name and address of the donor.
    • The amount of the donation or the nature of the donation if not in cash.
    • Certification to the effect that the receipt is issued for purposes of section 18A and that the
    donation has or will be used exclusively for 18A activities.

    PBOs who have Section 18A approval (and perform both 18A and non 18A activities) must obtain an
    audit certificate confirming that all donations received during the year for which they issued section 18A
    receipts were used solely in carrying on 18A activities. The audit certificate must be retained as part of their records.

    Should the PBO be unable to prove that funds received (for which 18A receipts were issued) were used
    solely for 18A activities in South Africa, those donors who made use of the section 18A deduction may be
    denied such a deduction.

    All PBO’s are required to, upon submission of annual income tax returns, provide SARS with S18A related information.

    Further these records should also be maintained for five years. In order to ensure the safe retention of records as well as easy and efficient access to records by SARS, especially for inspection or audit purposes during the prescribed retention period, a PBO is required to
    keep and retain its records in their original form, in an orderly fashion and in a safe place.

    Tax Compliance
    To proceed for a better analysis we need to know about your Organisation’s Tax Compliance information properly.



    Related FAQ's

    PBOs are required to submit annual income tax returns even if there is NIL taxable income for that
    particular year.
    The relevant form is the ITR12EI which may be obtained on the SARS eFiling website, the SARS Tax Exemption
    Unit or a SARS branch office.
    The return must be signed off by a duly authorized representative and such person will be assumed as
    having full knowledge and understanding of statements made in the return.

    A person who wilfully and without cause refuses or neglects to submit a return or document to SARS is guilty
    of an offence and on conviction is subject to a fine or imprisonment for a period not exceeding two (2)
    years.

    In addition to submitting income tax returns, a PBO has to submit:
    – EMP 201 PAYE returns
    – Bi-Annual EMP 501 reconciliations
    – VAT 201 returns (if registered for VAT)