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SARS Address to the Participants at the AWQAF SA NGO TAX SEMINAR 2002 (12/05/2002) Mark Kingon SARS: AGM: Compliance: Legal and Policy Ladies and Gentlemen: Let me first apologise for my not being present here today. Certain other obligations, one being the fact that is Mothers Day has intervened, but I trust that this brief overview will help you in your understanding of the new dispensation relating to tax exempt bodies such as religious organisations. Firstly I think it is imperative to note that the purpose of the changes which were undertaken in respect of the taxation of Non Profit organisations was driven by numerous complaints that were made against the old regime. The Katz Commission was tasked by Government to look into the various tax aspects effecting Non- profits and prepared a report known as the ninth interim report which is available on the SARS web site. Subsequently in his Budget Speech on the 23rd February 2002, the Minister of Finance announced certain changes relating to the taxation of non-profits, in line with some of the proposals made by the Commission. The legislation was drafted and made available for public comment, which was followed by various discussions before the Finance Portfolio Committee of Parliament. The legislation became operative on the 15 July 2001. The legislation basically provides for the exemption of a so called Public Benefit Organisation which must engage in what is termed an approved public benefit activity. These lists of activities were also made available for comment by the public, and finally were approved by the Minister on the 15th July 2001. A copy of the list is in the pack before you. The effect of the legislation is that all entities, which regard themselves to be exempt or were exempt from income tax in the past, must apply or reapply for tax exempt status by the 14 July 2002. I may mention that it is our intention to get approval to extend this date by at least a year. In reapplying the organisation must agree to amend its founding document within a period of five years to comply with the provisions of section 30 of the Income Tax Act. They must also give a written undertaking to abide by the requirements in the interim. The requirements are as follows: That the activities of the exempt entity must be carried out in the Republic. That no funds will be distributed to any person other than in the course of undertaking an approved PBA. That on dissolution the remaining assets will be transferred to any similar approved PBO. No remuneration will be paid to any employee, office bearer, member or other person which is excessive having regard to what is considered reasonable in the sector and in relation to the service rendered. That the PBO may only invest its surplus resources in certain recognised and prudent investments. This is obviously the area where there are certain concerns, especially when read together with my next point regarding trading. This and the restriction of trading limits the scope of investments and would in essence prevent an organisation from investing in, for instance property, which would give a rental return. It is on these areas which further discussions would be needed, which I refer to later on. A PBO is prohibited from engaging in any business undertaking or trading activity, other than: If the gross income from such activity is less than the greater of R25000 or 25% of the gross receipts of the PBO. If the undertaking or activity is integral and directly related to the object of the PBO and is carried out in a manner that is directed towards the recovery of cost and would not result in unfair competition in relation to taxable entities. If the activity is of an occasional nature. An approved PBO must be registered with the Directorate of Non Profit Organisations. The process of approval which must be followed by any entities, which wish to be exempt from the payment of income tax, is dealt with in the pack before you and I will not elaborate on this at this time. I wish to conclude by dealing with the concerns that you may have specifically and sketching what the process is going forward. Firstly I think the two areas of concern to you sitting here today can be summed up in the following two items: Firstly the issue of the fact that the approved Public Benefit Organisation, to use the new term, is not permitted to trade or invest outside certain specific approved investments And secondly that not all your activities which each of you is engaged in are covered by the list of activities which is before you. On the first matter, this is a matter which needs to be taken up with the National Treasury as this is a matter which, if accepted, would require a change of legislation. I would propose that if needed a meeting be set up with representatives from the various organisations present here and the National Treasury and SARS. I can be the liaison in this regard. On the second matter, it is quite opportune that we are discussing this topic today. We will shortly be having a working group meeting between National treasury, SARS and various role-players in the Non profit sector to discuss proposed changes to the lists. It is recommended that one person from this group be represented at such meeting. It would be appreciated if I could be contacted in this regard. That concludes my brief overview of the position. Thank you and again my sincere apologies for not being with you today. |
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