At the recent ThinkGood 2017 event, coordinated by CMDS on behalf of the Service Providers’ Network, we talked on this important topic.
Most non profits host fundraising events from time to time, from simple cake sales through to elaborate golf days. However, they may not have considered possible VAT, Section 18A and other income tax implications. We will deal with each in turn over three newsletters.
Part 1/3 – VAT and fundraising events
If an organisation is registered as a VAT vendor, there are important considerations to take account of with regard to fundraising events:
Generally speaking, a registered VAT vendor must charge output VAT on all its taxable supplies. Therefore, the proceeds of the sale of tickets for an event or the sale of goods or services would have to include output VAT.
There are, however, specific exemptions and concessions related to the sale of donated goods which affect “associations not for gain” and “welfare organisations” differently.
If an association not for gain receives donated goods/services, the sale of those donated goods or services, (or of any goods of services in which donated goods and services constitute at least 80% of the value of the supply), is exempt from VAT.
Thus, the proceeds from the sale of such goods and services, such as cakes at a cake sale or items sold at a charity auction would not include output VAT. This also means, however, that no input VAT, on the costs of the fundraising event, can be recovered from SARS.
For a welfare organisation, the situation is slightly different. Under section 23(3)(a) of the Value-added Tax Act, a welfare organisation is able to register for VAT without making taxable supplies. [This is because there is a special provision in the definition of “enterprise” which allows a welfare organisation to conduct an enterprise even if supplies are made for no consideration.] Also, it is conceded that the soliciting of donations is an integral part of a welfare organisation’s enterprise activities and so the organisation will be allowed to recover any VAT that it incurs through such activity (i.e. the input VAT arising from fundraising costs).
The impact of these concessions is, however, unclear in relation to fundraising events. On the one hand, if welfare organisations are also associations not for gain, it could be argued that the sale of donated goods and services that meet the criteria set out above is exempt from VAT. On the other hand, however, SARS contends (in its relevant guides) that if the welfare organisation is selling anything at all (e.g. raffle tickets, cakes or other donated goods/services), it is making taxable supplies for a consideration and therefore output VAT is included in the selling price; if so, the welfare organisation would be able to recover any input VAT arising from the costs of the event.
So, for non profits that are registered VAT vendors, there are important VAT implications to consider related to your fundraising events. The sale of goods and services related to fundraising events are generally considered to be taxable supplies and therefore include output VAT. The concession (exemption) for associations not for gain on the sale of donated goods or services means that the proceeds of sale do not include output VAT. Whether this exemption also applies to welfare organisations is not currently clear.
If you have been engaged with SARS on this issue, we would be very glad to hear from you.