Over the last few years a plethora of pop-up “NGOs” have appeared that are involved in quasi-political activities including representing themselves as amicus curiae in court cases.
Often they are simply a one-person band that has used an organisational form for a specific purpose. Sadly, perceptions arise that they really do represent a constituency and the media add to this impression by providing significant (and free) coverage of their views. When checking organisational facts on the internet, for example, their websites or Facebook pages usually have a donation section. However, their legal status is not clear as such information is not provided. A statement that they are an NGO is not helpful as in South African non-profit legislation the term NGO does not exist. In South Africa we use the terms non-profit organisations (NPOs) or public benefit organisations (PBOs). However, there may well be members of the public who would like to make a contribution to these causes, but it is important to understand the ramifications of making donations to organisations that are not registered as public benefit organisations.
There are various forms of registration for non-profit organisations in South Africa. They can be established as trusts (with the Master of the High Court), non-profit companies (with the Companies and Intellectual Property Commission CIPC) or as voluntary associations in terms of common law. All have a founding document that defines their purpose and the roles and responsibilities of their board members. Once established, non-profits need to register as public benefit organisations (PBOs) with the South African Revenue Services in order to receive tax exemption.
According to the SARS website, non-profit organisations “play a significant role in society as they take a shared responsibility with Government for the social and development needs of the country. Preferential tax treatment is designed to assist non-profit organisations by augmenting their financial resources”. Tax exemption is not automatic and has to be applied for through SARS’ tax exemption unit. The website points out that as organisations use public funds, approval is a privilege and includes a responsibility to use the funds “responsibly and solely for their stated objectives, without any personal gain being enjoyed by any person including the founders and fiduciaries”.
Registration as a PBO is important for a number of reasons.
Firstly, it is a form of accountability that any donor should be happy to have. Essentially, the organisation needs to submit a tax return that can be scrutinised to ensure that the funds have been used for the purposes outlined in the founding document. However, more practically, if an organisation is not registered as a PBO, the donor will need to pay a donation tax on any donated funds in excess of R100,000 a year and the organisation will need to pay income tax on funds received (or the individual receiving the funds if it is indeed a fake organisation). There is no donations tax payable if a donation is made to a PBO. In addition, if an organisation has the additional status of qualifying in terms of section 18A of the Income Tax Act, the donor can deduct the value of the donation from their own income tax, although there is a ceiling on the amount based on the percentage of the taxable income of the donor.
In order to receive 18A tax exempt status, an organisation’s founding document needs to include a clear objective that is aligned with the approved public benefit activities that are outlined in the Ninth Schedule of the Income Tax Act. The Schedule is very broad, but it is of interest that arts and culture organisations cannot receive this status. Giving to such organisations therefore involves no tax benefits for the donor other than they are exempt from donations tax. There are a range of conditions to receiving this status, including a requirement that PBOs cannot use their resources to support a political party, neither directly nor indirectly. Political parties have their own tax exempt status.
Besides tax exemption, donors should also undertake a level of due diligence by checking an organisation’s website or Facebook page. Information that should be supplied include a list of board members and organisational leadership and staff; a list of current and past donors; detail of their programmes and their annual reports, including financial reports, as well as their founding documents. Importantly, the site should include evidence of the organisation’s registration status, including its PBO status. If there is no transparency, big question marks should arise.
In addition to registration as a PBO with SARS, many non-profits register with the Non-Profit Organisations Directorate in the Department of Social Development for NPO status. This is not compulsory, but government departments and the Lotteries require such registration in order to make grants as do some other donors. Once again, it is in line with increased accountability as registered organisations need to report annually to the Department, both with a narrative and financial report. Any changes in their governing boards also has to be provided. Both the NPO registration number and the PBO number should be reflected on any public documentation or information such as websites or letterheads. In addition, opening a bank account in the name of the non-profit should follow FICA requirements and therefore some form of registration should have occurred. Great care should be taken on the part of the donor to check that the bank account itself is not simply a diversion of funding to an individual.
It is of concern that a range of organisations have been established that call for donations and yet do not reveal any of the above information. It is public knowledge that political leadership figures have accepted donations for their personal expenses and it is likely that some unregistered organisations accept donations as well. SARS should be undertaking research to understand the scale of these “donations” (sometimes called loans, but never repaid) to assess whether the givers should be paying donations tax, and whether the recipients should be paying income tax. For the general public, such a gift in excess of R100,000 per annum to our own children is taxable and some action should be taken to ensure we are all treated equally before the law. DM