It has been a while since we last wrote, but I know that we have all been busy, re-building what had fallen, creating new ways of working, adapting as we always have, to survive and continue to serve.
In this ngoLAW Brief we bring you a mixture of topics and links that we hope are useful to you including:
- The POPI deadline looms– should we be afraid? (and a link to Nicole’s intro webinar)
- A note (from a SARS binding private ruling) on possible consequences of acting outside of your objects;
- The SARS 18A audit certificate requirement– who needs to pay attention to this?
- Janice and Nicole have an adventure with Wildlife Act;
- Marcus Coetzee on Founder Syndrome – an extract and link to the full article;
- The 18A Q&A answers and Words That Count Growth Academy; and
- The Papillon Fundraising Conference – sign up now (links here)
Please feel free to send this Brief on to anyone who you think might benefit from it. If you have been sent this by someone else and would like to receive future newsletters, click this link to subscribe ….. If you would rather not be sent these, then unsubscribe at the end of the newsletter.
Keep the questions coming and send us suggestions for future topics – visit our website, hit the ‘contact’ tab, and enter your question into the ‘Contact Form’ space provided.
Stay safe, keep calm and carry on- A Luta Continua!
Nicole, Lize, Bandile, Janice, Lisa and Dorothy
THE POPI ACT: DO WE NEED TO BE AFRAID?
The deadline for POPIA (Protection of Personal Information Act) compliance is 30 June 2021 and those of us who have been busy with other things (!) are doing some quick scrambling (and a small amount of panicking) to make sure we are not in breach.
For an introduction to the basic concepts of POPIA and path to compliance, follow this link to the POPIA for Non Profits presentation, hosted by Fundraising Talk. https://www.youtube.com/watch?v=MloJlyYXp7g
Data is the currency, the treasure of our age and the quest to protect it is a good quest and true- it is a battle against the commodifying of what makes each of us (and all of us) who we are. Commercially-driven data accumulation has been going on, unseen, for some time and although we are now busy building fortresses and digging moats against these brutish invasions, we also have to deal with the internal mould that has quietly taken hold.
We are aiming to include POPIA focus points in each of our next few newsletters but, for now, some good news which should help you to approach POPIA calmly and with a measure of confidence:
- NGOs are not the ‘bad guys’ that POPI has in its sights. We focus on uplifting, serving and protecting our beneficiaries, and not on selling their details to the highest bidder. We have always been required to adhere to confidentiality protocols and our work has always been, project by project, for a defined purpose (an important POPIA concept).
- The scary fines and consequences that those who are selling POPIA services, tools and seminars keep mentioning are only applicable in very limited circumstances, and to actions which we would all recognise as criminal or deeply unethical (selling data, giving false evidence, obstructing investigations, failing to comply with an enforcement notice).
For more routine compliance gaps and misses, there is an enforcement process (with much lower or less severe ultimate consequences) and which goes through the stages of:
- POPIA requires that organisations take “appropriate, reasonable technical and organisational measures” to safeguard the data they hold. It is not a ‘one size fits all’ requirement, and it cannot be dealt with ‘all in one’.
POPIA compliance should be dealt with in the same way as any other compliance matter is: beginning with an assessment of the risks, dealing with the biggest gas and risks first, and then putting in place a compliance plan which, step by step, builds awareness into the systems and psyche of the organisation. It is a process.
A sneak peek at our summary of suggested first steps:
ACTING OUTSIDE YOUR OBJECTS- TAX AND OTHER CONSEQUENCES
Some people believe that trading is prohibited for PBOs, and others that all income of PBOs is tax exempt. Neither of these is true, and the answer lies somewhere between the two extremes: Under Section 10(1)(cN) of the Income Tax Act, all non-trading income and some types and parts of trading income are exempt from tax if the organisation has PBO status.
Any organisation with PBO status potentially receives three categories of income:
- Non-trading tax exempt income;
- Non-taxable trading income; and
- (the rest) which is taxable trading income.
One way to understand this is that PBO status is granted to your organisation, but tax exemption only applies to certain parts of the organisation’s income stream.
Section 10(1)(cN)(ii)(aa) says that business or trading income which satisfies all of (A), (B) and (C) in that section will not be taxable. The three parts (summarised) are:
- The income is integral and directly related to the object of the PBO; and
- It is substantially a cost-recovery operation; and
- Taxable entities are not unfairly competed with.
A recent SARS Private Binding Rule (BPR 348) examined part (A) in relation to a particular PBO. (Although these BPRs are not of general legal application, they do give an indication of how SARS will approach and interpret this part of the law.)
In this case, the PBO was set up with the object of promoting entrepreneurship through education and training. It now wished, as part of its entrepreneur-training programme, to provide seed funding to young entrepreneurs. The proposed loans granted to the beneficiaries would not attract interest in the usual way, but beneficiaries would repay the loans by paying a small percentage of monthly revenue to the PBO. The income received by the PBO would be used to provide further funding or for other PBAs.
SARS was approached by the PBO for a BPR on whether the income earned by the PBO on the loans would be taxable trading income.
SARS ruled that it would consider the income as taxable trading income, as (in SARS’ view) the activity would not be ‘integral or directly related’ to the objects of the PBO. (SARS did confirm, however, that the PBO ‘basic exemption’ amount (5% of gross income under 10(1)(cN)(ii)(dd) would apply, so that an amount equivalent to 5% of the entire income (of all types) of the organisation, would be exempt from tax).
On the main ruling made by SARS we feel that there would be scope to argue that part of the training was on-the-job and required working experience and that the seed funding provided was an essential part of and thus integral and directly related to, the training provided. If this were a case which went to court, the PBO would be able to make this argument and it might prevail.
There is another way to fix the tax problem, and that is by the amending of the objects of the organisation to include provision of micro-loans. This option, though, is not without risk, as the relevant PBA for these micro-loans (1(p)) has traditionally been very narrowly interpreted by the Tax Exemption Unit, and SARS must be notified of any amending of the objects, and may pick up on this and, depending on the scale of the enterprises being supported, may not approve under 1(p).
In a way, it would be better for the non-profit sector as a whole if the organisation which applied for this ruling took SARS on and argued the ‘integral and directly related’ case. Winning this case would set a very useful precedent for the sector and guide for SARS in future.
Our main note to all organisations on this (even those with no trading income to be thinking about) is not chiefly about possible tax consequences.
It is very important to be aware that the objects clause in your founding document both enables and constrains the work the organisation may do. Putting aside the tax consequences, your organisation is simply not permitted to engage in activities which do not fall within the stated objects in the founding document.
There are two main legal drivers behind this:
- Any sort of non-profit organisation is set up for a purpose (and not for profit). Contractually, those who govern the organisation are bound by the expressed purpose in the founding document, and are not permitted to authorise activities and expenditure not falling under the recorded objects; and
- In terms of section 30(3)(b)(ii) of the Income Tax Act any PBO “ …is required to utilise its funds solely for the object for which it has been established.”
Things change, work shifts, new ways are found of doing things. At every twist in the road or new path taken, the Board needs first to review the objects clause of the organisation, and, if necessary, put in motion the process to amend it to permit any changes.
ALL ABOUT AUDIT CERTIFICATES (AND THE 18A 50% RULE, TOO)
What are they?
Audit certificates are a record produced each year and kept on file certifying/giving an opinion on the use of funds for which 18A receipts were issued. According to s18A(2B), a PBO which falls under section 18(2A), must obtain and retain an audit certificate. This audit certificate confirms that all donations received or accrued in the year for which they were issued were used for 18A activities.
Who needs them?
Not all 18A organisations are required to produce an 18A certificate. Only those which:
- are 18A active project organisations which carry on a mixture of 18A and non-18A work and;
- 18A donor organisations which fund a mixture of 18A-qualified organisations and ‘other’ organisations.
This means that an audit certificate is only needed if you have a mixture of 18A and non18A projects by the organisation or donations made to 18A and non-18A qualified beneficiary organisations.
Who issues/creates them?
Despite its name, an audit certificate does not have to be produced by a qualified auditor, but by an independent, suitably qualified person who has done the appropriate work to enable verification. This would be, for example, an independent auditor, independent accountant, or independent bookkeeper.
Note: donor/conduit organisations:
For donor organisations required to provide an audit certificate, the certificate should also indicate whether the ‘retention limit’ has been complied with. This is about what is left of what used to be called the ‘75% rule’ (historically, all tax-exempt entities were required to spend 75% of funds within the following year). In its reduced state, this rule:
- Only applies to donor organisations (not to active project organisations);
- Only applies to funds for which 18A receipts have been issued; and
- Now only requires that 50% is on-donated.
What do we do with the audit certificate?
Once an organisation has an audit certificate, it must be kept on record for a minimum of 5 years and produced if SARS calls for an audit. If the organisation has been notified about an audit and the 5-year period has expired, the certificate must be kept until the audit is completed. Similarly, if the organisation has returns outstanding, the audit certificate must be kept until that return is submitted.
As a rule, do not submit the audit certificate with the organisation’s income tax return, but make sure that it is kept safe.
ADVENTURES WITH WILDLIFE ACT
Janice and Nicole were beyond excited to be invited to be observers in one of the ground teams of a recent large scale rhino dehorning operation carried out and supported by Ezemvelo KZN Wildlife’s Spioenkop and Game Capture teams, Wildlife ACT, the Rhino Recovery Fund, African Wildlife Vets and Heligistix. The operation, funded and supported by Wildlife ACT, enabled the experienced team of conservationists to dehorn the entire population of White Rhino on Spioenkop Nature Reserve in KZN over a three day period. See this link for the story on the Wildlife Act blog https://wildlifeact.com/blog/mass-rhino-dehorning-undertaken-in-kzn/ .
We were there for just one day, and Janice’s photos tell the story of these beautiful beasts and the measures which need to be taken to protect them from poaching.
It was an overwhelmingly emotional experience, to be up close to these rhinos and to the professional and merciful action taken.
In his new article published on marcuscoetzee.co.za, Marcus Coetzee says:
“ Founder’s syndrome occurs when a founder struggles or refuses to ‘change gear’ and adopt a new mindset, approach or skill set as the organization grows and as its strategic context changes. Rather than making way for a new leader to take the organization to the next level, the founder tries to hang on to power. The founder becomes unable to achieve the outcomes associated with effective leadership. The organization then becomes maladapted – inappropriately or poorly adapted to its environment”.
Marcus’ insightful article diagnoses the syndrome and prescribes some treatments and also preventative measures. At ngoLAW we always advise those founding new organisations to think and build beyond themselves from the start, and we support the advice given by Marcus- read the full article here: https://www.marcuscoetzee.co.za/founders-syndrome-undermines-the-legacy-of-strong-leaders/
FUNDRAISING TALK 18A Q&A- the answers and new moves from Melanie and Kelvin
Follow this link for the answers to the questions asked in the 18A update session of the February Fund Raising Talk https://ngolawsa.co.za/fundraising-talk-session-february-2021-18a-qa .
Melanie Jackson, the local half of Fund Raising Talk has recently launched a new membership-based Words that Count Growth Academy. Follow this link https://www.subscribepage.com/growth-academy-launch to see the detail of the training and support offered (with some early bird discounts)
PAPILLON FUNDRAISING CONFERENCE
Book your seat here Papillon Press | Papillon’s Annual Fundraising Conference for this event, 19 And 20 May, and a steal at R295 for two days of training, insights and perspectives from experts. The programme is here Papillon Press | Papillon Annual Fundraising Conference Programme and all delegates get 15% off of any book or Directory in the Papillon range (including the second editions of the ngo Matters series, soon to be coming off the press)