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Are you certain of your NPO's Section 18A status?

This is the question that all NPOs need to address as a matter of urgency due to the recent amendments implemented by SARS for the 2016 income tax filing season which opened on 1st July 2016.

The South African Revenue Service (SARS) have for the first time introduced Public Benefit Organisation (PBO) reference number validations on income tax returns filed by donors. Previously no such validation took place when donors claimed Section 18A deductions for donations made within their income returns, which resulted in a loss of revenue to Government.

What does this mean to your NPO?

There have, in the past, been many instances when NPOs incorrectly issued Section 18A certificates/receipts to donors for donations received even though:

• These donations were utilised for non Section 18A activities (e.g. religious or sporting activities etc); and/or
• The organisation may not have been an approved Section 18A PBO.

Thus donors were benefitting from income tax savings through these ‘invalid’ Section 18A certificates, which was a loss to fiscus, as no checks were done by SARS on the eligibilty of such claims. If anything, there were a few isolated cases where SARS auditors would identify such anomalies during standard income tax verification reviews.

For 2016 income tax returns however, there will be automated validation of the PBO numbers input within donor’s income tax returns to verify that the deduction being claimed is for donations to registered Section 18A PBOs. A further change is the requirement for donations to be reflected individually per organisation (up to a maximum of five of the largest donations) on the donor’s income tax return.

Should this validation fail, the donation deduction will be rejected, which would mean no income tax benefit to the donor. This could have far reaching consequences on your organisation and its relationship with donors, along with the possibility of the NPO sector being placed under the SARS spotlight.

The next steps for your NPO

There seems to be a common misconception that all PBOs are Section 18A approved, which is not the case. In fact, a large number are unaware that a normal PBO application made to the Tax Exemption Unit does not automatically qualify for Section 18A approval.

It is thus crucial that your organisation verifies that it is a registered Section 18A PBO by inspecting the PBO registration letter issued by SARS, which over and above the PBO registration, would specify the Section 18 approval. Alternatively, you could search the list of approved Section 18A PBOs which is available on the SARS website.

With acknowledgment to Farida Lavangee – farida@tpcsa.co.za and Reza Amra – reza@tpcsa.co.za of Turning Point Consultants, Southern Africa