benefits of being a public benefit organization

PBO

Tax

Workshop

Hoosen Agjee26th January 2010

www.TaxBenefits4ngos.co.za

Business solutions for commerce & NGOs

South African individuals GIFT

R 930 million

a month to Charity

Prof. Adam Habib CCS (Sept 2006)

R 12 billion a year !!

Breaking free to financial freedom

NPO

A turning point in your organisation

Private /Family/Group Endowment

Few undertake actual activities.

Religious & societal needs.

Mainly Education & Bursaries.

Provide funds to other NPOs.

Family Charity Trust

Trust NGO

PRIVATE FOUNDATION > 1994

• Corporate Social Responsibility arm.

• BEE points.• Link to marketing strategy.• Wider community sees Group

contribution.• Control over funds.• Partner with a public NPO.

Public NPO

Section 21 Company (Memo & Articles)

Trust (Trust Deed)

Voluntary Association (Constitution)

Separate Ownership

Legal Entity

Section 21 Co.

• Juristic

• Memo & Articles

• Final say – Companies Act

• Minutes. Meetings

• Audit compulsory

Trust• Trustees

• Trust Deed

• Final say - Master

• Minutes , Meetings

• No Audit

Association of Persons

• Non juristic – Office bearers

• Constitution

• Final say - Common law

• Minutes , Meetings

• No Audit

The Choice

Tax Benefits are the SAME for all

Becomes a Formal Body

• S21 Company – CIPRO issues certificate.

• Trust – Master issues Letters of Authority

• Constitution – Once signed by all parties

Can open bank acc &

Start operating

C

Questions ?

Empowering you !

Voluntary registration into NPO Sector

NPO Number 354-123 NPO

• Co-operation between Donors & PBO’s

• Regulated by the NPO Act

• Transparency

• Access to info on PBO’s.

NPO

Why an NPO ???

Broaden Donor Base !

U Save Money !

NPO

Benefits of an NPO Number

No Tax Benefits

Access to Govt & corporate funding

NPO becomes a body corporate

Discounts – Civic Venues hired,

adverts etc.

NPO

1970

2010

Organisations

Donor

NPO

2. Narrative Report

NPO No. & Obligations

3. Submit Financial Statements – 6 months after year end

NPO

1. Receipt all monies

Questions ?

Empowering you !

&NPO’S

Voluntary registration for Tax Exemption

“ Only if the NPO is officially tax exempt can it enjoy the benefits that SARS offers “

Formal Tax-Exempt Status

TAX BENEFITS

Gateway

Trust Deed, Constitution or Memorandum

• 3 Unconnected persons as Trustees.

• Funds used for PBA.

• Transfer assets on dissolution.

• No excessive remuneration.

NO tax-exemption without these clauses

NPO

Public Benefit Activities

Welfare and Humanitarian;

Religion; Cultural; Health care;

Education & Development; Land & Housing; Research;Provision of

FundsConservation & Animal Rights

NPO

Fields of Activity

Separate Activities qualify for :

18A Donor tax certificates

Rates Exemption

Claiming input VAT

Branch of a Foreign Charity can be a PBO

• Foreign charity must be tax exempt in its foreign country

• Special rules on dissolution

Enjoys same benefits as local PBO

Public Benefit

Organisation

(PBO)

Ordinary organisation BECOMES

NPO

Questions ?

Empowering you !

Income Tax

NOT TAXABLE • Fundraising – dinners, golf day, fairs

• Donations & Grants

• Membership Fees, School Fees

• Occasional income from items made & sold

• Integral & directly related (Rehab)

• Cost Recovery & Volunteers (tuck shop)

Tax Exemption = Money in your Pocket

BUSINESS INCOME

• Rent, Hire of Facilities

• Interest on loans in private companies

• Any activity that competes with normal businesses.

TAXED @ 28%

Tax-free portion of PBOs

Business IncomeGreater of R 150 000 ; or 5 % of PBO’s Gross

Income

28 % Income Tax

PBO

R500 000

Rental Income

Rental income R 500 000

R 500 000

R 98 000R 402 000

R 98 000

Rental Income R 402 000

Charity Trust Taxed on

Business IncomeRental / Business income R 500 000Exempt portion 150 000

----------------Rent taxable 350 00028 % Income Tax R 98 000

PBO Relying on Rental Income

Rental income R 500 000Exempt portion 150 000Amount taxable 350 00028 % Income Tax (on R 350k) 98 000AVAILABLE TO USE R 402 000

PBO Relying on Rental Income

has 20% - 25 % LESS rental to use on activities

NON TAX-EXEMPT NGO

PAY 40 % income tax on ALL your

trading income!

Non-PBO 40% Tax

NGO

Rental Income

R 500 000

R 200 000R 300 000

R 200 000

Rental Income R 300 000

Non-PBO Relying on Rent Income

Non-PBO has 40 % LESS rental

to use on activities

Income Generation & Reduction of Tax

• Link to objects

• Use a separate entity

• Network with other PBOs

Questions ?

Empowering you !

Tax-Deductible Donations

2 Types of 18A Bodies

Give funds to others to

undertake work

Undertake activities yourself

PBOs that can issue Certificates

Welfare & Humanitarian

Health Care ; Land and Housing

Education & Development

18 A Qualifying Activities :

18A money can only be used for these activities

Activities that DON’T qualify

• Religious & Cultural

• Madressah Salaries

• Dawah expenses

CANNOT USE 18A Money for these activities

Types of Donations

In KINDCASH / CHEQUE

Get a proper Receipt /Certificate

• Name and address of the PBO.• SARS PBO Number• Date of receipt of donation• Your name and address• Amount of cash donation or nature & value of donation made in

kind

•

Donation will only be used for 18A activities.

Individual Company Taxable Income 250 000 250 000Donation to PBO 25 000 25 000Income Tax Saved 4 750 8 750

S 18A BENEFITS

Ltd. to 10% of Taxable Income

DONORS SAVE TAX

S 18A Benefits to Community

Individual

Taxable Income R 50 000Donation to 18A Body 5

000Income Tax Saved by individual 900

DONORS SAVE TAX

100 000 people = R 90 million a year!

18A Tax NOT claimed is LOST !!

Are our Donors missing out on R 100’s m govt help every year ?

Donor

Questions ?

Empowering you !

Other Tax Savings

to DonorsEstate Duty

Donations Tax

Capital Gains Tax

Income Tax and Family Trusts

Money In YOUR pocket

Giving Charity Using a Family Trust

TRUST INCOME

1,000,000

Donation is Tax-deductible in a Trust

Income 1 000,000

To PBO 150,000

Tax Save

60,000

R 150 000 is taxed as business income in

PBO !

Donation to Non-Exempt Body

Donor NOT EXEMPT Org.

takes 20 %R 600 000 - R 100 000

R 500 000=

Donor

Donation to Tax-Exempt Body

Donor

NO Donations TaxR 600 000- R nil R 600 000=

PBO

Estate can claim the Bequest to a PBO

(irrespective of the amount)

& save the family 20% Estate Duty.

Heirs receive more

Estate Duty - 20 %

Donor DOES NOT pay CGT on

gains given to PBO

Donor Saves Tax

Capital Gains Tax

Benefits to your

Organisation

NGO saves 8 % DUTY on the

property acquired for use by PBO

NGO Saves Tax

TRANSFER DUTY- 8 %

CAPITAL GAINS TAX

PBO does not pay CGT on gains received or made

PBO pays CGT on investment property sold after 1 April 2006

(y/e 31 March 2007)

Rates

Differential rates

Welfare & humanitarian

Education & development

Health care

Questions ?

Empowering you !

VAT

REDUCE PBO’s EXPENSES

by 14 % VAT

CLAIM INPUT VAT

Input VAT on other types of expenses CAN’T be claimed

Health Care

Welfare and Humanitarian

Education

OUTPUT VAT

Membership School Fees

NO Output VAT

Fundraising

Donations & Grants

gives back VAT to PBOs

Are we missing out on millions

on VAT refunds yearly?

Amateur Sporting Bodies & Recreational Clubs

• By 31 March 2009 should apply to become a PBO

• Their business income > R 50 000 will be taxed from March 2010.

Questions ?

Empowering you !

Conclusion

NPO NUMBER

Broader Donor BaseIncrease your

Funding

=

TAX-EXEMPT STATUS

CASH SAVEDUndertake more activities

www.TaxBenefits4ngos.co.za

DONORS use tax incentives to give to YOUR ORGANISATION

Road to financial freedom has OPENED

NPO

A turning point in your organisation

• Meets your organisation’s requirements

• Easily gets you an NPO number

• Saves your NGO thousands in taxes & duties

At TPC we share our 27 years experience

to give you a Founding Document that

Visit our website:

www.TaxBenefits4ngos.co.za

Trust Deeds/ Constitutions & Section 21 Co’s. for NGOs

Family Trusts for individuals

Estate planning and Wills

Accounting Services

Administration of Estates

Business solutions for Commerce & NGOs

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