Page 736 - SAIT Compendium 2016 Volume2

BGR 20 INCOME Tax aCT: BINdINg gENERaL RuLINgS BGR 20
3.1 Public bene t organisations
Section 10 (1) (cN) (ii) (aa) (B) provides that the receipts and accruals of a PBO approved by the Commissioner under section 30 (3) derived from any business undertaking or trading activity will be exempt from normal tax to the extent that the receipts and accruals are derived from a business undertaking or trading activity which –
‘is carried out or conducted on a basis substantially the whole of which is directed towards the recovery of cost’.
Paragraph 63A of the Eighth Schedule provides among other things that a PBO approved by the Commissioner under section 30 (3) must disregard any capital gain or capital loss determined in respect of the disposal of an asset if substantially the whole of the use of that asset by that PBO on and after valuation date was directed at –
• a purpose other than carrying on a business undertaking or trading activity; or
• carrying on a business undertaking or trading activity contemplated in section 10 (1) (cN) (ii) (aa), (bb) or (cc).
3.2 Recreational clubs
Section 10 (1) (cO) provides that the receipts and accruals of a recreational club approved by the Commissioner under section 30A will be exempt from normal tax to the extent that they are derived from any business undertaking or trading activity that –
‘is carried out on a basis substantially the whole of which is directed towards the recovery of cost’.
3.3 Membership-based organisations
Section 10 (1) (d) (iii) and (iv) provide that the receipts and accruals of the following entities are exempt from normal tax:
• A mutual loan association, delity or indemnity fund, trade union, chamber of commerce or industries (or an
association of such chambers) or local publicity association approved by the Commissioner in terms of section 30B
[section 10 (1) (d) (iii)].
• A company, society or other association of persons established to promote the common interests of persons (being
members of such company, society or association of persons) carrying on any particular kind of business, profession or occupation approved by the Commissioner under section 30B [section 10 (1) (d) (iv)].
Section 30B (2) (b) provides among other things that the Commissioner must approve an entity for the purposes of section 10 (1) (d) (iii) or (iv) whose constitution or written instrument provides that –
• ‘the entity is required to utilise substantially the whole of its funds for the sole or principal object for which it has been
established’ [section 30B (2) (b) (iv)];
• ‘substantially the whole of the activities of the entity must be directed to the furtherance of its sole or principal object
and not for the speci c bene t of an individual member or minority group’ [section 30B (2) (b) (vi)]; and
• ‘substantially the whole of the entity’s funding must be derived from its annual or other long-term members or from an appropriation by the government of the Republic in the national, provincial or local sphere’ [section 30B (2) (b) (ix)].
3.4 Transfer duty
Section 9 (1) (c) of the Transfer Duty Act provides that no duty shall be payable in respect of the acquisition of property by a PBO approved by the Commissioner under section 30 (3) or by any institution, board or body, which is exempt from normal tax under section 10 (1) (cA) (i) which has as its sole or principal object the carrying on of any public bene t activity contemplated in section 30 –
“in respect of property acquired by such public bene t organisation, institution, board or body, the whole, or substantially the whole, of which will be used for the purposes of one or more public bene t activity carried on by such public bene t organisation, institution, board or body, as the case may be ...”.
4. Ruling
The expression ‘substantially the whole’ is regarded by SARS to mean 90% or more. However, in order to overcome certain practical dif culties SARS will accept a percentage of not less than 85%. The percentage must be determined using a method appropriate to the circumstances.
This ruling constitutes a binding general ruling issued under section 89 of the Tax Administration Act 28 of 2011.
5. Period for which this ruling is valid
This binding general ruling applies for an inde nite period.
Group Executive: Interpretation and Rulings Legal and Policy Division
SOUTH AFRICAN REVENUE SERVICE
728 SAIT CompendIum oF TAx LegISLATIon VoLume 2