I have a NPO client registered as a trust. This trust is a remedial school and has been granted exemption in terms of s30 to the income Tax act. The main source of income is school fees and donations received. The main expense is staff cost. As they emplo
Important:
This answer is based on tax law for the tax year ending 28 February 2019.
Answer:
School fees, or other receipts of a school, are not automatically exempt from normal tax. The exemption is only available to a public benefit organisation, not an NPO, that is approved by SARS under section 30 of the Income Tax Act. You state that an approval, under section 30, was obtained from SARS. But we provide the following for sake of completeness:
With regard to schools, SARS explains it as follows in their guide (SARS’s Tax Exemption Guide for Public Benefit Organisations in South Africa):
“An independent school must be registered as such by the Head of the Education Department responsible for education in a province. A registered independent school can be established as an association of persons, or a trust or a non-profit company. The independent school will either have a constitution, trust deed or memorandum of incorporation as a founding document. Provided the activities and the founding document comply with the provisions of section 30, the TEU may approve an independent school as a PBO.”
Section 10(1)(cN)(i) then exempts from normal tax, receipts and accruals … derived otherwise than from any business undertaking or trading activity.
Section 10(1)(cN)(ii) applies to the extent that the receipts and accruals are derived from any business undertaking or trading activity, but only if the undertaking or activity meets the requirements of section 10(1)(cN)(ii). You will have to test this against the sole or main purpose of the school, as provided for in its constitution.
According to the examples of “total receipts and accruals”, provided in the practice generally prevailing (issue 4), the “total receipts and accruals of a PBO will include the total or gross amount received or accrued from all sources, whether of a capital nature or not, such as donations, … school fees …”
At issue is therefore whether the school fees accruals are derived from any business undertaking or trading activity.
If section 10(1)(cN)(ii) doesn’t apply, section 10(1)(cN)(ii)(dd) may well.
SARS would indeed be able to go back more than three years if the fact that the full amount of tax chargeable was not assessed, was due to … misrepresentation; or … non-disclosure of material facts. See section 99(2) of the Tax Administration Act.