Most nonprofits 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.
Nonprofits do not automatically enjoy exemption from income tax, but must apply to SARS for approval as a public benefit organisation (“PBO”) so that they can receive certain taxation benefits.
PBO approval, however, grants only partial exemption from income tax. Income related to the carrying out of public benefit activities is generally exempt. However, income from trading activities undertaken by an NPO may be taxable, depending on the nature of those trading activities; if the activities are taxable trading activities, income tax may become payable after the application of the annual exempt portion (higher of R200 000 or 5% of the total receipts of the organisation) and the deduction of relevant expenses.
So we ask – “could the proceeds of fundraising events potentially be taxable”? In answering this section 10(1)(cN) of the Income Tax Act helps us by specifically exempting from income tax, the proceeds of a trading activity that is of an occasional nature and is undertaken substantially with voluntary assistance (without compensation). So, if these criteria are met, the net proceeds (profit) of fundraising events for a PBO will not be taxable.
If you are concerned that the income generated from fundraising events, or other trading activities, could be swallowed up by tax, please do contact us and, with one consultation, we should be able to advise you on the tax position and talk you through the implications.