Tax exemption guide for institutions, boards or bodies

SARS has published:

• a tax exemption guide for institutions, boards or bodies directly under section 10(1)(cA)(i) of the Income Tax Act 58 of 1962 (“IT Act”), accessible here.
• a tax exemption guide for companies wholly-owned by institutions, boards or bodies under section 10(1)(cA)(ii) of the IT Act, accessible here.

Section 10(1)(cA)(i) and (ii) respectively provide an absolute exemption from income tax of the receipts and accruals of any –

• institution, board or body established by or under any law; and
• association, corporation or company all the shares of which are held by any such institution, board or body.

The exemption under section 10(1)(cA)(i) will, however, apply only to the extent that such institution, board or body:

• has been approved by the Commissioner subject to any conditions deemed necessary to ensure that the activities of that institution, board or body are wholly or mainly directed to the furtherance of its sole or principal object; and
• complies by law or under its constitution with the prescribed requirements.

Any institution, board or body approved by the Commissioner under section 10(1)(cA)(i) carrying on Public Benefit Activities in South Africa may potentially qualify for approval under section 18A subject to the requirements of that section being met. An institution, board or body bears the onus of proving that it complies with the requirements relative to the exemption and approval under section 18A and must retain the necessary supporting evidence

The first guide provides general guidance on the exemption from income tax of qualifying institutions, boards or bodies under section 10(1)(cA)(i). The guide deals with the following taxes and duties that may affect institutions, boards or bodies:

• Capital gains tax
• Dividends tax
• Donations tax
• Employees’ tax
• Estate duty
• Income tax
• Securities transfer tax
• Skills development levy
• Transfer duty
• Unemployment insurance contributions

The second guide provides general guidance on the exemption from income tax of wholly-owned entities of an institution, board or body.

An institution, board or body envisaged in section 10(1)(cA)(i) may for various reasons establish a company whose operations are ancillary or complementary to the object of the institution, board or body. If that institution, board or body holds all the shares in such company, the receipts and accruals of that company will also be exempt from income tax if the requirements of section 10(1)(cA)(ii) are met.

The guide sets out the qualifying requirements for this company and detailed explanations thereof.

The receipts and accruals of a company will be exempt from income tax only if –

• such company falls within the ambit of paragraph (a) of the definition of “company” in section 1(1);
• all the shares are held by an institution, board or body; and
• the operations are ancillary or complementary to the object of the institution, board or body holding shares in that company

The guide deals with the following taxes that may affect wholly-owned associations, corporations or companies of institutions, boards or bodies:

• Capital gains tax
• Dividends tax
• Donations tax
• Employees’ tax
• Income tax
• Skills development levy
• Unemployment insurance contributions

Note that this guide does not constitute an “official publication” as defined in section 1 of the Tax Administration Act and accordingly does not create a practice generally prevailing.

01/07/2022