Page 474 - Juta's Indirect Tax

IN 70 VaLue-added tax act: InterPretatIOn nOtes IN 70 5. CONSERVATION, ENVIRONMENT AND ANIMAL WELFARE
(a)
(b) (c)
Engaging in the conservation, rehabilitation or protection of the natural environment, including ora, fauna or the biosphere.
The care of animals, including the rehabilitation, or prevention of the ill-treatment of animals.
The promotion of, and education and training programmes relating to environmental awareness, greening, clean-up or sustainable development projects.38
Annexure C – Extracts from the VATCOM Report on the government’s draft Value-Added Bill in regard to the VAT treatment of associations not for gain and welfare organisations
2.4 Association not for gain and a welfare organisation
An ‘association not for gain’ and a ‘welfare organisation’ are de ned in clause 1. Special provisions in regard to the taxation of such associations and organisations are included in the Bill. Those provisions are summarised in paragraphs 15.4 and 15.5. The de nition of ‘association not for gain’ includes religious and charitable institutions and some clubs. They are not exempt from tax merely by reason of their status or functions. Their treatment, however, differs in certain respects from the treatment of ordinary businesses. The de nition of ‘welfare organisation’ includes any association not for gain which is registered as a welfare organisation under the National Welfare Act if it carries on certain activities circumscribed in the de nition. The treatment of welfare organisations also differs in certain respects from the treatment of ordinary businesses and associations not for gain which do not qualify as welfare organisations.
15.4 Association not for gain
‘Association not for gain’ is de ned in clause 1 to mean ‘any religious institution of a public character’, or ‘any other society, association or organisation, whether incorporated or not’ if it is carried on ‘otherwise than for the purposes of pro t or gain to any proprietor, member or shareholder’ and it has a written constitution in terms of which it must utilize its property or income solely in the furtherance of its aims and objects and is prohibited from transferring any portion thereof to any person other than in the form of bona de reasonable remuneration to of cers and employees for services actually rendered and, on its winding up or liquidation, its remaining assets after satisfaction of its liabilities have to be transferred to a similar society, association or organisation.
Besides a religious institution the de nition may in the appropriate circumstances also include a charitable institution or a club. An association not for gain which carries on an enterprise does not enjoy an exemption from tax on all the supplies made by it in the course or furtherance of any enterprise carried on by it. It will, however, enjoy the following advantages:
(a) In terms of clause 12 (b) an exemption applies in respect of the supply by it of any donated goods or services or
any other goods made or manufactured by it if at least 80 per cent of the value of the materials used consists of donated goods. ‘Donated goods or services’ is de ned in clause 1 to mean ‘goods or services which are donated to an association not for gain and are intended for use in the carrying on or carrying out of the purposes of that association.’
(b) A donation in cash voluntarily made to an association not for gain is not treated as consideration for a supply of goods or services if ‘no identi able direct valuable bene t’ arises in the form of such a supply (see the de nitions of ‘consideration’ and ‘unconditional gift’ in clause 1). Voluntary contributions to church funds by members of the congregation would normally be of this description. Any payment made by a public authority or local authority is excluded from the de nition of ‘unconditional gift’ and it follows from the de nition of ‘consideration’ that a subsidy payable to an association not for gain will fall under that de nition.
(c) In terms of clause 23 (5) separate registration of branches, divisions or separate enterprises of an association not for gain may be allowed if each branch, division or separate enterprise maintains an independent system of accounting and can be identi ed by reference to its activities or location. The turnover threshold of R150 000 per annum for registration provided for in clause 23 (1) will then apply separately to each branch, division or separate enterprise. (Splitting of the threshold where separate registration of branches or divisions is effected under clause 50 in the case of any other person is not permissible.)
15.5 Welfare organisations
A ‘welfare organisation’ de ned in clause 5 to mean an association not for gain which is registered as a welfare organisation under the National Welfare Act, 1978 (Act 100 of 1978), provided that that association’s activities consist of ‘the provision of food, meals, board, lodging, clothing or other necessaries, comforts or amenities to aged or indigent persons, children or physically or mentally handicapped persons’.
As a ‘welfare organisation’ is rst and foremost an ‘association not for gain’ it enjoys all the advantages of such an association (see paragraph 15.4). Whether a welfare organisation can enjoy further advantages depends on its speci c circumstances and whether it is registered as a vendor or not.
15.5.1 Voluntary registration
A person can only apply for voluntary registration if he carries on an enterprise or intends to do so. In terms of paragraph (b) (ii) of the de nition of ‘enterprise’ in clause 1, the activities of a welfare organisation, namely the provision of food, meals, board, lodging, clothing or other necessaries, comforts or amenities to aged or indigent persons, children or physically or mentally handicapped persons, amount to the carrying on of an enterprise. It is thus possible for a welfare organisation to apply for voluntary registration. Any other association not for gain which does not supply goods or services for a consideration in the course or furtherance of an enterprise, does not carry on an enterprise and can thus not apply for voluntary registration. The consequences of voluntary registration are:
(a) An input tax deduction can be claimed in respect of tax paid in respect of goods or services acquired for welfare activities. Where, for example, a welfare organisation provides food or clothing to needy children it is deemed to be making taxable supplies even if no charge is made. Any tax paid in respect of the acquisition of that food or clothing
466 Juta’s IndIrect tax 2016