Fiduciaries and your PBO
One of the most pressing matters when establishing a charitable organisation is to register as an exempt institution with SARS which allows for the pardoning of income tax responsibilities. Should an organisation meet the requirements to be classified as a Public Benefit Organisation (PBO), certain types of income received will be entirely exempt from tax obligations.
When registering an organisation, three unconnected persons need to be selected to accept fiduciary responsibility on behalf of the organisation. This is a signed declaration accepting the responsibilities imposed on them by SARS. Fiduciaries cannot hold notable positions within the PBO, including that of trustees, directors or members.
Understanding the Significance of a Fiduciary
Many individuals do not understand that accepting the responsibility as a fiduciary comes with strict conditions set out in the Income Tax Act, which includes keeping SARS informed of changes made to the organisation’s activities, documentation or other fiduciaries.
Section 30 of the Income Tax Act also reiterates this through harsh penalties against non-compliance of the responsible parties. This penalty outlines that intentional non-compliance can be liable for conviction to a fine or imprisonment. Although there have been no instances of this penalty being enforced, we have recently seen the Tax Exemption Unit prioritise the investigation of registered PBOs to confirm their compliance.
Given that SARS is firing on all cylinders regarding non-compliance, we may see the organisation start enforcing their laws more stringently. Therefore, it is advisable for anyone accepting a fiduciary role for a PBO to be aware of what the responsibilities are.
The Responsibilities of a PBO Fiduciary
Assisting in managing a PBO’s compliance is a fantastic way to give back to the broader South African community. However, individuals who take on this responsibility must do so seriously. If a fiduciary is removed or replaced, SARS must be advised of the replacement so that their records can be updated.
Some of the requirements a fiduciary is responsible for ensuring on a PBO’s behalf are as follows:
The primary purpose of the PBO is to engage in one or more public benefit activities (PBA) for charitable or altruistic reasons without attempting to make a profit.
Funds will not be directly or indirectly distributed to any person unless in the course of undertaking the PBA.
Funds collected should only be used for the original purpose of establishing and operating the PBO.
Upon dissolution, the remaining assets must go to any PBO, institution, board or organisation that has its focus on conducting one or more of the PBAs listed in the Ninth Schedule to the IT Act.
A copy of constitution amendments, or any other written instruments under which the PBO is established, must be submitted to SARS. SARS should be notified when changes are conducted.
The PBO will comply with all reporting requirements the Commissioner for SARS sets.
A PBO that provides funds to any association of people detailed in Part I of the Ninth Schedule of the IT Act must ensure these funds are used for their intended purpose.
PBOs who provide funding to other PBOs will need to adhere to the requirements in section 18A of the IT Act when distributions are made within a specified timeframe.
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