Tax exemption for a non-profit, and the receipts donors actually want

Three different things people confuse

You can hold all four. You need the entity first, and the 18A approval is only considered once the organisation qualifies as a PBO carrying on activities listed in Part II of the Ninth Schedule.

What section 30 requires

• Three unconnected fiduciaries. At least three persons must accept fiduciary responsibility, and no single person may directly or indirectly control decision-making. They may not be connected persons to one another, which excludes spouses and relatives within the third degree.
• Activities in Part I of the Ninth Schedule. Welfare and humanitarian, health care, land and housing, education and development, religion and belief, cultural, conservation and environment, research and consumer rights, sport, and providing funds or assets to other PBOs.
• The sole object must be public benefit, carried on in a non-profit manner with an altruistic intent, and not intended to promote the economic self-interest of any fiduciary or employee beyond reasonable remuneration.
• A dissolution clause. On winding up, remaining assets must go to another approved PBO, an exempt institution or government. This clause has to be in the founding document before SARS will approve.
• No distribution of funds to any person other than in carrying out the public benefit activities.

Trading is allowed within limits. Income from a trade is exempt where the trade is integral and directly related to the public benefit activity and carried on substantially at cost, or is occasional and substantially funded by donations, or is ministerially approved. Beyond that there is a basic exemption of the greater of five percent of total receipts and accruals or R200 000, and anything above it is taxable.

How to apply

1. Fix the founding document first. The memorandum of incorporation, constitution or trust deed must state the objects, name the fiduciaries, contain the dissolution clause and prohibit distributions. Applying with a document that does not say these things is the main reason applications come back.
2. Complete form EI1, the application for exemption, listing three unconnected office bearers, trustees or directors, naming a public officer, and giving a working email address. It is now completed on eFiling.
3. Attach the supporting documents. For a non-profit company: the CoR 14.1 and CoR 14.3 with directors, and the signed dated memorandum of incorporation stating the objects. For a trust: the deed and the Master’s letters of authority. For a voluntary association: the signed and dated constitution. Plus certified identity documents of the three fiduciaries and the public officer, a bank letter or statement under three months old, financial statements if the organisation is more than a year old, and proof of address.
4. Ask for section 18A at the same time if your activities fall in Part II of the Ninth Schedule. Say which Part II activities you carry on and how, and attach the founding documents and the latest financial statements.
5. Wait for the letter. Approval comes as a letter with a unique exemption reference number, not a certificate. It is prospective from the date SARS approves, unless you ask for retrospective approval and can prove you qualified earlier.
6. File the IT12EI annually once approved. Exempt does not mean exempt from filing.

The Tax Exemption Unit sits at the SARS Pretoria CBD branch and can be reached on 012 483 1700 or at [email protected]. SARS publishes no service standard for these applications.

Section 18A receipts, and the trap in them

An 18A receipt is worth money to the donor: they deduct the donation against taxable income, capped at ten percent of taxable income with the excess carried forward. That makes the receipt a document SARS scrutinises, and an invalid one costs the donor the deduction.

A valid receipt must show the organisation’s 18A reference number, the date the donation was received, the name and address of the organisation and of the donor, the amount of a cash donation or the nature and value of a donation in kind, and a certification that the receipt is issued for section 18A purposes and that the donation will be used solely for approved activities.

Since 1 March 2023 SARS requires more: the donor’s nature of person, identification type and the country that issued it, the identification or registration number, the income tax reference number where available, a contact number, an email address, a unique receipt number, and the trading name where it differs from the registered name. Organisations that kept using their old receipt template are issuing receipts that no longer comply.

You may only issue receipts from the date SARS issues the 18A reference number. Backdating them is not an option.

The IT3(d) return

Every 18A approved organisation must report the receipts it issued to SARS as third-party data, and must file a null declaration if it issued none. The return is due twice a year: by 31 October covering 1 March to 31 August, and by 31 May covering the full year to the end of February. Up to fifty receipts can be captured on eFiling; more than that goes through bulk submission. This matched data is how SARS checks a donor’s claim against your records, so a return you do not file becomes your donor’s problem.

What actually goes wrong

• Assuming the NPO number did it. Years of donations received with no exemption and no valid receipts.
• Three office bearers who are family. The connected persons rule is applied strictly.
• No dissolution clause. Fixing the founding document means a members’ or trustees’ resolution and a CIPC or Master’s filing, then a fresh application.
• Issuing 18A receipts before approval, or with the pre-2023 fields only.
• Skipping the IT12EI. Approved organisations still file an annual income tax return.
• Missing the IT3(d). It is new enough that many organisations have never filed one.

Frequently asked questions