I have a client that wants to register a backabuddy campaign for an individual (her husband) he has been lying on life support in ICU for the last 5 weeks, when he does get out there will be a long road of rehab involved, backabuddy is a NPO they don’t is
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
The money received through a BackaBuddy, or other crowdfunding initiatives, are in all likelihood more akin to donations than income.
The donations tax liability lies with the donor, and not, in the first instance, with the donee. The donations, in this instance, is not made by BackaBuddy, but by the individuals providing the funds. There is therefore no exemption from donations tax, other than the section 56(1)(b) one (the R100 000 annual exemption) of the section 56(2)(c) one.
The tax consequences of a donation or inheritance (for the donee (recipient)) are not specifically dealt with in the Income Tax Act. As there is a receipt one must apply the principles of the definition of gross income to determine if it will have tax consequences. Our courts have laid down the law in this regard. According to Judge Smalberger (in CIR v Pick ‘n Pay Employee Share Purchase Trust) “... any receipts accruing to the Trust were not intended or worked for, but purely fortuitous in the sense of being an incidental by product. They were therefore non-revenue. That makes them accruals of a capital nature falling outside the definition of "gross income" in the Income Tax Act, and therefore not subject to tax.” Judge Southwood in CSARS v Wyner agreed with this and stated the principle as follows: “This means that receipts or accruals will bear the imprint of revenue if they are not fortuitous, but were designedly sought for and worked for...”
The taxpayer bears the burden to prove that it was of a capital nature - fortuitous.
The risk here is of course that the taxpayer, by registering with BackaBuddy, specifically do so in order to receive the donations. It may be designedly sought for. You’ll address this in your opinion.
One may also say that the amount remains capital in nature because it is received, in order to be spent, on the rehabilitation expenses. These expenses will probably qualify for the section 6B rebate and we don’t believe that the money received through the BackaBuddy is a recoupment of the expenses.