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Navigating the Tax-Exempt Landscape

Navigating the Tax-Exempt Landscape

Embarking on a journey through the intricate world of tax exemptions, this blog post aims to shed light on the complexities and nuances that define the tax responsibilities and benefits for exempt institutions. Whether you’re a seasoned professional or just starting, this edition offers insights to navigate through the labyrinth of tax-exempt status.

The Significance of Non-Profit Organizations:

Non-profit organisations play a pivotal role in societal development, contributing significantly to the welfare of communities. To support their noble endeavours, these organisations are entitled to preferential tax treatment, providing a crucial boost to their financial capabilities. However, it’s important to note that this benefit doesn’t come automatically; organisations must actively meet specific criteria outlined in the Income Tax Act and apply for exemption, with approval from the South African Revenue Service (SARS) being a prerequisite for enjoying this tax relief.

Eligibility Criteria for Tax-Exempt Status:

To be approved as a tax-exempt institution, an organisation must be constituted in one of the following ways:

  • Public Benefit Organisation
  • Recreational Club
  • Membership Associations and Professional Bodies
  • Small Business Funding Entity
  • Homeowners Association
  • Public Institution
  • Companies Owned by Public Institutions

Highlighting Important Changes:

All exempt institutions are now required to annually submit an IT12EI – Return of Income Tax Exempt Organisations – External Form income tax return. This return plays a crucial role in enabling the Commissioner to determine the tax liability of a partially exempt Tax-Exempt Institution (EI) and ensuring that the approved EI is operating within the prescribed legal parameters.

Fields Required for IT12EI Completion:

When completing the IT12EI, several fields must be addressed, including particulars of the organisation, general financial information (even if there is no income tax liability), information in respect of trading activities (if applicable), taxable income/loss (if applicable), and tax-deductible receipts issued in respect of donations (Section 18A) for approved Section 18A tax-exempt institutions, among others. Even if the Tax-Exempt Institution was dormant for the assessment year, specific information must be indicated in the “Additional Information” section.

Submission Deadlines and Penalties:

For companies or other entities, returns must be completed and submitted within 12 months of the financial year end of the exempt institution. Returns for trusts must be submitted annually by the due dates set out in the annual notice issued by the Commissioner. It’s crucial to note that SARS reserves the right to audit all IT12EI returns, whether submitted by active or dormant Tax-Exempt Institutions. Returns must be submitted on time to avoid administrative penalties, even if there is no tax liability. Failure to do so may result in penalties incurred by the exempt institution.

Helpful Hints and Future Information:

This blog post provides helpful hints, including guidance for organisations awaiting income tax exemption outcomes, clarification on the tax status of approved organisations, and information on the submission of returns. Contact PRNC to ensure a smooth journey through the tax-exempt landscape.

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