The South African Revenue Service would like to bring to the attention of all public benefit organisations (PBOs) an important announcement made last month by the Minister of Finance in his Budget speech.
Minister Manuel announced that the revenue laws this year will contain measures to assist PBOs that rely in part on income from business activities.
Currently the Income Tax Act allows exempt PBOs to conduct business activities within certain prescribed limits. Where the trading activities fall outside these specified parameters, the consequences are that the PBO might lose the exempt status in totality with immediate effect if these activities are not transferred to a separate taxable entity.
SARS believes that current moves to separate the business activities from core public benefit activities could result in an unnecessary administrative burden for the PBOs.
In terms of present legislation, exempt PBOs may retain any business undertaking or trading asset acquired before 1 January 2001 for a period of five years until 1 January 2006 without losing their exempt status.
The proposed changes in legislation are meant to allow for a partial exemption for PBOs engaged in business activities without losing their exempt status. This means that the income from business or trading activities undertaken by PBOs in excess of certain limits, will become fully taxable, whilst income relating to the public benefit activities will remain exempt from income tax.
As from the effective date of the proposed amendment introducing the partial exemption, PBOs will have the option to retain their business activities.
Where a PBO is uncertain whether or not to transfer the business activity in order to comply with present legislation, it is recommended that no steps be taken in the interim until the proposed legislation is promulgated.
Further inquiries in this regard may be referred to:
The Tax Exemption Unit
Telephone: (012) 422 8800
ISSUED BY THE COMMISSIONER FOR THE SOUTH AFRICAN REVENUE SERVICE