Donations Tax, PBOs and Exempt Institutions
It seems there’s a need for further clarity, particularly regarding Donations Tax, Exempt Institutions and PBOs (Public Benefit Organisations).
You will have read in another article that certain non-profit entities may register at SARS both as an Exempt Institution (EI) and as a PBO. So what is the difference and how does that affect taxes?
Exempt Institutions do not pay Income Tax. They may still have to pay Donations Tax as well as PAYE, VAT etc., depending upon their nature.
Public Benefit Organisations are exempt from Donations Tax. Also a donor to a PBO does not pay Donations Tax and can deduct the donation from their taxable income.
A donations is defined as any gratuitous (free or at no charge) disposal of property including any gratuitous waiver or renunciation of a right.
If the person (donee) receiving the donation gives anything in return, it is not a donation.
The above makes sense, when you think about it. If either an EI or a PBO could donate to their directors instead of paying salaries, nobody would pay tax.