It is a fairly well-known rule that an organisation which has 18A status may only, in respect of funds for which 18A receipts have been issued, on-donate to another organisation which also has PBO and 18A status. However, there is a little more detail in this rule, and it is a very important detail.
There are two types of 18A status:
- 18A(1)(b) status- approved by SARS as a donor and disburser of funds and goods;
- 18A(1)(a) status- an organisation which sets up and carries on its own initiatives or projects and is recognised by SARS as having (active project/’doer’) status.
An organisation which has donor (18A(1)(b)) status, may only on-donate funds for which 18A receipts have been issued, to an organisation with 18A(1)(a) “doer” status. This is contained in the provisions of section 18A in the Income Tax Act, the relevant bits of which read:
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18A(1) …there shall be allowed to be deducted in the determination of the taxable income of any taxpayer so much of the sum of any bona fide donations by the taxpayer in cash or of property made in kind which was actually paid or transferred during the year of assessment to— (a) any— (i) public benefit organisation contemplated in paragraph (a)(i) of the definition of "public benefit organization" in section 30(1) approved by the Commissioner under section 30; or (ii) institution, board or body contemplated in section 10(1)(cA)(i), which— (aa) carries on in the Republic any public benefit activity contemplated in Part II of the Ninth Schedule, or any other activity determined from time to time by the Minister by notice in the Gazette for the purposes of this section; (bb) complies with the requirements contemplated in subsection (1C), if applicable, and any additional requirements prescribed by the Minister in terms of subsection (1A); and (cc) has been approved by the Commissioner for the purposes of this section; (b) any public benefit organisation contemplated in paragraph (a)(i) of the definition of "public benefit organization" in section 30(1) approved by the Commissioner under section 30, which provides funds or assets to any public benefit organisation, institution, board or body contemplated in paragraph (a), or any department contemplated in paragraph (c) and which has been approved by the Commissioner for the purposes of this section;… |
The providing of funds, assets etc is not listed in Part II of the PBAs, but only in Part I. But an organisation which carries on the donor functions set out in 10 of Part I of the PBA lists, attains 18A status through section 18A(1)(b).
To ascertain which sort of 18A status a potential recipient of funds has, the first place to look is the SARS online list of 18A organisations, which specifies the kind here: https://www.sars.gov.za/businesses-and-employers/tax-exempt-institutions/approved-section18a-pbos/ . One word of warning- an organisation may have both sorts granted to it, and the SARS online record only has place to capture one, so it would be best to check with the organisation and ask them to send you their exempting letter issued by SARS. This letter will clearly set out what sort of 18A status they have. Or whether they have both. If they have applied for funding, are clearly carrying out projects but have been granted 18A (1)(b) status, then either an error has been made in the application, or they have shifted focus since the status was granted. In either case, they will need to approach SARS to amend their status.
Until that status is amended, they will not be able to receive funds from 18A(1)(b) organisations UNLESS the funds are not derived from donations for which 18A receipts have been issued. This is another rather important detail- the 18A rules only apply to funds for which 18A receipts have been issued. A local donor organisation which has 18A(1)(b) status, but which receives all of its funding from overseas sources, for example, does not have to issue an 18A receipt for those funds, and so has far greater freedom in the use of its funds. So if you have funds coming in from donors who do not want or need an 18A receipt, or from investments, these could be used to fund any PBO (even one with 18A(1)(b) status).
And you would not be contravening your PBO status in so doing as this is the list of relevant PBAS in the 9th Schedule:
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(10) The provision of— (a) funds, assets, services or other resources by way of donation; (b) assets or other resources by way of sale for a consideration not exceeding the direct cost to the organisation providing the assets or resources; (c) funds by way of loan at no charge; or (d) assets by way of lease for an annual consideration not exceeding the direct cost to the organisation providing the asset divided by the total useful life of the asset, to any— (i) public benefit organisation which has been approved in terms of section 30; or … (i), unlike the other two, does not limit funding to PBOs approved other than in this paragraph. And (iii) provides the opportunity to fund organisations which have no registered status.
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It is important to check your founding document as well. Sometimes these will prohibit funding to any organisation which does not have 18A status. Even though this is not a legal requirement. But the founding document will have to be obeyed (or amended).
Nicole Copley
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