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Are anointed church materials sold in church subject to tax exemption

Posted 9 November 2015 under Tax Questions



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Advocate says:
7 November 2015 at 11:17

Are anointed church materials (e. G anointed oil, wrist bands, t-shirts) sold in church premises subject to tax exemption under SARS Act. If so, what is the relevant law governing such exemption and procedure of securing such exemption

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TaxTimTaxTim says:
8 November 2015 at 16:43

What percentage of all income/receipts does this amount come to?


Advocate says:
8 November 2015 at 19:18

Many thanks.
It constitutes about 5%


TaxTimTaxTim says:
9 November 2015 at 8:01

Generally this could be considered to be exempt. The guidance from SARS is based on the following:

15. Trading or business activities and partial taxation
15.1 General
Section 10(1)(cN) provides that the receipts and accruals of an approved PBO which arise
otherwise than from any business undertaking or trading activity are exempt from tax.
A PBO is permitted to carry on business or trading activities provided the sole or principal
object remains the carrying on of PBAs. A PBO may not, however, engage in commercial
trading activities and claim that since a portion of the profits are used to carry on approved
PBAs, it should qualify for approval as a PBO.
Receipts and accruals which arise from a business undertaking or trading activity will only be
exempt from tax if the receipt or accrual falls within one of the four exemptions included in
section 10(1)(cN). These are dealt with in 15.2.
For a comprehensive explanation of the trading provisions refer to Interpretation Note No. 24
(Issue 2) “Public Benefit Organisations (PBOs): Trading Rules – Partial Taxation of Trading
Receipts” dated 31 August 2007 which is available on the SARS website.
15.2 Receipts and accruals derived from a business undertaking or trading
activity that are exempt
The receipts and accruals from the four categories of business undertakings or trading
activities detailed in 15.2.1 to 15.2.4 are exempt from normal tax.
Each category of exemption has its own conditions and requirements and is applied
separately.
There is no limit on the amount of receipts and accruals which are exempt from normal tax
under the exemptions in 15.2.1 to 15.2.3. There is, however, a limitation on the amount of
the exemption discussed in 15.2.4.
15.2.1 Integral and directly related trade [section 10(1)(cN)(ii)(aa)]
In order to qualify for this exemption all of the following requirements must be complied with:
• The business undertaking or trading activity must be integral and directly related to
the sole or principal object of the PBO.
• Substantially the whole of the business undertaking or trading activity must be
conducted on a cost-recovery basis. In other words the goods must not be sold to
maximize profits but rather with the intention of recovering direct and reasonable
indirect costs.
• The business undertaking or trading activity should not result in unfair competition
with other taxable entities. This means that the PBO should not be in a more
favourable position or have an unfair advantage over a taxable entity conducting the
same business undertaking or trading activity.
Basic Guide to Income Tax for Public Benefit Organisations 9
Note:
• The concept “substantially the whole” is regarded by SARS as 90% or more.
However, in order to overcome certain practical difficulties, SARS will accept
a percentage of not less than 85%.
• A PBO that uses its assets to generate income, for example, by letting its
parking facilities, a hall or tennis courts to members of the public, will not be
regarded as carrying on a related trading activity but a taxable trading activity.
A PBO that claims an exemption under this subparagraph must provide detailed motivation
and support for the view that the relevant business undertaking or trading activity complies
with all three conditions.
15.2.2 Occasional nature [section 10(1)(cN)(ii)(bb)]
In order to qualify under this item the business undertaking or trading activity must –
• take place on an occasional or infrequent basis; and
• be undertaken substantially with assistance on a voluntary basis without
compensation. This excludes the bona fide reimbursement of reasonable and
necessary out-of-pocket expenditure.
A PBO that claims an exemption under this subparagraph must demonstrate and provide
support for the view that the two conditions are met.


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