Page 370 - SAIT Compendium 2016 Volume2

IN 24 (3) Income Tax acT: InTeRPReTaTIon noTes IN 24 (3)
Result:
The trading activities are integral and directly related to the sole object of the PBO which is to care for disabled persons. The primary purpose of the activities is to provide for the consumption of the residents and only the excess produce is sold in order to recover costs. Secondly, the activities are regarded as being of therapeutic bene t to the residents who are unable to nd employment in the open labour market. Substantially the whole of the trading activities are conducted on a cost-recovery basis. If it were not for the donated services or if external labour had been hired, a pro t would not have been realised. The activities do not result in unfair competition with other taxpaying entities
Note: The use of assets to generate income, for example, by the letting of parking facilities, tennis courts or a hall, to members of the public, will not be regarded as a related trading activity but as income from a taxable trading activity.
6.2 Occasional trade [section 10(1)(cN)(ii)(bb)]
In order to qualify for exemption as an occasional trade the business undertaking or trading activity must –
• take place on an occasional or infrequent basis (see 4.4); and
• be undertaken substantially with assistance on a voluntary basis without compensation, other than the bona de
reimbursement of reasonable and necessary out-of-pocket expenditure (see 4.8).
6.3 Ministerial approval [section 10(1)(cN)(ii)(cc)]
A business undertaking or trading activity may be approved by the Minister by notice in the Government Gazette by taking into account the –
• scope and benevolent nature of the undertaking or activity;
• direct connection and interrelationship of the undertaking or activity with the sole or principal object of the PBO;
• pro tability of the undertaking or activity; and
• level of economic distortion that will be caused by the tax exempt status of the PBO carrying on the undertaking or
activity.
Any submission in this regard must clearly demonstrate and motivate the bene ts of the business undertaking or trading activity for the general public, together with reasons why it will not result in unfair competition with other taxable entities, or erode the tax base. To date, no such activities have been approved by the Minister. The submission together with the fully motivated representation must be addressed to:
The Group Executive: Interpretation and Rulings Legal and Policy Division South African Revenue Service
Private Bag X923
PRETORIA
0001
6.4 Basic exemption [section 10(1)(cN)(ii)(dd)]
A PBO carrying on business undertakings or trading activities which do not fall within the ambit of the permissible exemptions set out in 6.1, 6.2 and 6.3 will, subject to the basic exemption, be taxed on the receipts and accruals derived from all such other business or trading activities. The greater of 5% of the total receipts and accruals of the PBO or R200 000 will be deducted from those receipts and accruals.
Example 11 – Examples of occasional trade with voluntary assistance
Fundraising activities such as fêtes, cake sales, raf es and jumble sales which take place on an annual basis with the assistance of helpers or volunteers who are not compensated for their services.
Example 12 – Basic exemption
Facts:
A PBO conducts PBAs from a property which it owns. In order to augment its income, it lets a portion of the property that is not used for carrying on the PBAs.
The PBO’s total receipts and accruals for the year ended 28 February 2013 are as follows:
Donations
Rental income
Interest income
Total receipts and accruals
R 450 000 90 000
50 000 590 000
Result:
The basic exemption is calculated as an amount equal to the greater of 5% of the total receipts and accruals or R200 000. 5% of the total receipts of R590 000 amounts to R29 500. The total receipts from letting the property (R90 000) will be exempt as the PBO receives the bene t of the greater of R29 500 or R200 000.
7. Practical application of the basic exemption
7.1 Determination of the basic exemption threshold
The total receipts and accruals derived from all trading activities that do not qualify for exemption (see 6.1, 6.2 and 6.3) must be added together before the deduction of the basic exemption. This means that the value of the basic exemption
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