CHARITIES: SARS proposes amendments to PBO rules

Those of our clients who operate charitable organisations structured as Public Benefit Organisations (“PBO’s”) with tax exempt status should note certain changes in the pipeline for the rules relating to PBO’s published in the latest Taxation Laws Amendment Bill.

Currently, the legislation requires 75% of all donations received by a PBO to be distributed within 12 months of the end of the year of assessment in which the donation was received. The reason for this threshold is to prevent PBO’s from accumulating large reserves as well as to match the timing of the donations deductions claimed by the donors and the distributions by the PBO’s.

The new legislation proposes reducing the 75% threshold to 50% with the aim of promoting the effectiveness and sustainability of the conduit PBO’s. It also allows for PBO’s to earn passive income, such investments being regulated by a list of certain institutions with which monies can be invested. However undistributed funds in the form of returns on investments will be required to be distributed every five years from the date of the amendment, alternatively every five years from the date that a reference number is issued to the PBO, should the PBO be incorporated after 1 January 2015. This is no doubt one again aimed at limiting the accumulation of large reserves by PBO’s that are expected to actually use donor funding to benefit the public.

As a consequence of the new proposals, PBO’s will be required to amend their founding documentation to make provision for these new conditions. The legislation is expected to come into effect on 1 March 2015.

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