Income Tax Exemption for Non-Profit Religious Organisations in South Africa

Overview of Tax-Exempt Status for NPOs (Churches)

In South Africa, churches and other religious institutions can qualify for income tax exemption by being approved as Public Benefit Organisations (PBOs) under the Income Tax Act 58 of 1962. Once approved, a PBO’s receipts and accruals are exempt from income tax to the extent that they comply with the requirements of section 10(1)(cN). In essence, donations, tithes, grants, and other non-business income of a church PBO are fully tax-exempt. However, income from business or trading activities is only tax-free if it meets certain criteria in the Act; otherwise, that income (or a portion of it) becomes taxable. The legal framework for this tax exemption is primarily contained in section 30 (which defines PBO status and conditions) and section 10(1)(cN) (which exempts PBO income and sets limits for trading income) of the Income Tax Act. Below is a structured analysis of these provisions, the types of income that may become taxable (with emphasis on rental and conference fees), and the conditions a church must abide by to maintain its tax-exempt status.

Section 30 – Requirements to Qualify as a Public Benefit Organisation

For a church or any NPO to be approved as a PBO (and thus enjoy income tax exemption), it must meet the stringent requirements of section 30 of the Income Tax Act. These requirements ensure the organisation is genuinely non-profit and engaged in defined public benefit activities (PBAs):

• Proper Entity Type: The organisation must be one of the allowed forms – typically a non-profit company (NPC), a trust, or an association of persons – established in South Africa for a lawful purpose. Churches often operate as voluntary associations or NPCs. Foreign religious bodies can also qualify via a registered branch in South Africa.
• Sole or Principal Object of Public Benefit: The only or main purpose of the organisation must be to carry out one or more public benefit activities (PBAs) listed in Part I of the Ninth Schedule to the Act. In the case of a church, the relevant PBA is typically “the promotion or practice of religion” (PBA category 5(a)). This encompasses acts of worship, witness, teaching, and related community service based on a belief in a deity. The organisation’s founding document should explicitly set out its religious (or other benevolent) activities and projects – merely listing the PBAs or stating a broad objective is not sufficient. Importantly, the predominant purpose cannot be a commercial enterprise – an NPO cannot say its main object is running a business to fund a PBA; the PBA itself must be the primary objective. For example, a church cannot have as its principal object a rental business or investment scheme even if proceeds are intended for ministry, as that would violate section 30 requirements.
• Non-Profit Character and Altruistic Intent: All public benefit activities must be carried out in a non-profit manner and with altruistic or philanthropic intent. In practical terms, this means the organisation should not be run with the intention of making profits for distribution. The activities may not directly or indirectly promote the economic self-interest of any person (such as the founders, fiduciaries, or staff), except through reasonable salaries for services. The Act explicitly forbids personal gain: no profits or assets of the church may be distributed to individuals, and only reasonable compensation for work done is allowed. For instance, church trustees or pastors can receive fair remuneration, but profits cannot be paid out as dividends or private benefits.
• Public Benefit for the General Public: The activities of the PBO must be carried on for the benefit of the public at large (or a sufficiently broad sector of the public), not a closed circle of private individuals. In the context of a church, this generally means its ministry, worship services and outreach are open or directed to the community (even if in practice a church serves its congregation, membership is usually open to anyone). This requirement ensures the PBO serves a charitable or public interest purpose and not an exclusive group.
• Founding Document Conditions: The church’s constitution or trust deed (founding document) must include certain mandatory clauses per section 30(3)(b). These include:
  • A provision requiring at least three unrelated persons to accept fiduciary responsibility and oversee the organisation (to prevent one person from controlling it).
  • Prohibition on distribution of funds or assets to any person (members, founders, etc.) except as reasonable compensation for services. All funds must be used solely to further the organisation’s stated public benefit objectives.
  • Dissolution clause: If the organisation is wound up or dissolved, its remaining assets must be transferred to another tax-exempt entity with similar public benefit purposes, or to a prescribed entity (such as another PBO, certain tax-exempt institutions, or government). This ensures that assets built up with tax-exempt funds continue to be used for the public good even after dissolution.
  • A requirement to comply with any additional Ministerial conditions (for example, there are regulations requiring PBOs to have financial reporting systems, or to spend funds within certain periods if they act as conduits). The law also disqualifies organisations that participate in tax-avoidance schemes or that use their resources for unacceptable purposes.
• No Political Party Support: A PBO (including religious ones) is prohibited from using its resources to directly or indirectly support, advance, or oppose any political party. This is specifically mandated by the Act to preserve the public benefit focus of the organisation. If a church were to fund a political campaign, for example, it would violate this rule and risk its PBO status.

When a church or religious NPO meets all the above criteria, it may apply to SARS’s Tax Exemption Unit for approval as a PBO under section 30(3). Approval is not automatic – even if the entity is registered as a non-profit with other regulators, it must separately obtain SARS approval for tax exemption. A 2019 Tax Court case ABC Company v CSARS illustrates the strict application of these requirements. In that case, a non-profit company providing affordable housing sought PBO status, claiming its activities benefited “low to medium income households.” The Tax Court found the organisation did not qualify as a PBO because its stated objective did not match the precise public benefit activity definition in the Ninth Schedule (housing for households with income ≤ R15,000 per month). The vague target of “low to medium income” went beyond the approved PBA criteria, leading the court to dismiss the PBO application. This judgment underlines that a non-profit church or charity must strictly align its purpose and activities with the listed PBAs in order to enjoy tax exemption. Simply being non-profit in form is not enough – the substantive activities must qualify under the law.

Maintaining Tax-Exempt Status

Once approved, a PBO church must continue to comply with the section 30 requirements. Failure to do so can result in SARS withdrawing the PBO approval, after which the organisation’s income becomes taxable (as a normal taxpayer) going forward. For example, if a church began distributing profits to its founders, or significantly changed its focus to non-public-benefit work, SARS could revoke its PBO status. It’s also required to submit annual returns and financial statements to demonstrate ongoing compliance. If a PBO’s approval is withdrawn, the Income Tax Act may treat the organisation as having disposed of its assets (potentially triggering tax on assets accumulated tax-free) and the entity will be taxable on its future income. Therefore, adherence to the founding document conditions (non-profit distribution, proper use of funds, public benefit focus, etc.) is essential for a church to maintain its income tax exemption.

Section 10(1)(cN) – Income Tax Exemption for PBOs’ Receipts and Accruals

Once a church or religious institution is officially approved as a PBO, section 10(1)(cN) governs which of its incomes are exempt from tax. In broad terms, all receipts and accruals of an approved PBO are exempt from normal income tax, except to the extent they are derived from a business or trading activity. The law creates a distinction between passive or donation income (fully exempt) and income from trading ventures (exempt only if certain conditions are met).

• Non-Trading Income – Fully Exempt: Donations, offerings, tithes, grants, and similar voluntary contributions received by a church PBO are not subject to income tax. Likewise, passive income like interest earned on investments or dividends would generally be exempt, as long as earning such income isn’t part of a business undertaking. (The mere holding of investments is not considered a “trading activity” in itself.) These sources are regarded as income derived “otherwise than from any business undertaking or trading activity,” and section 10(1)(cN)(i) exempts them outright. For example, if congregants donate money during services or the church receives a grant from a foundation, those amounts aren’t taxed. Even membership fees or offertory collections that are essentially contributions towards the religious activities would fall in this non-trading category and be tax-free.
• Trading/Business Income – Conditional Exemption: If the church (PBO) earns income from any business undertaking or trading activity, that income is not automatically exempt. Section 10(1)(cN)(ii) lays out certain permissible types of trading activities that will still be exempt, and it imposes limits on other types of trading. The intent is to allow PBOs to carry on incidental or related trading activities in support of their charitable work, without losing exemption, but to tax them on commercial activities that fall outside these narrow conditions. In other words, a church can engage in some revenue-generating activities (like fundraisers or sales) within limits – but beyond those limits, the income will be taxable.

Permissible Trading Activities (No Tax on Related Income)

Section 10(1)(cN)(ii) identifies three categories of trading activities that a PBO may conduct without losing the income tax exemption on those earnings. If a church’s trading income fits entirely into any of these categories, it remains tax-exempt – there is no monetary cap on income that qualifies under a permissible category. The categories are:

• Integral and Directly Related Trade (Cost-Recovery Basis): The undertaking or activity is integral and directly related to the PBO’s sole or principal objective, is conducted substantially on a cost-recovery basis, and does not unfairly compete with taxable businesses. All three sub-requirements must be met. This category covers trading that is essentially part-and-parcel of carrying out the organisation’s charitable/religious purpose, rather than a separate profit-driven venture. For instance, a church might sell religious literature, CDs of sermons, or serve tea and snacks at church events for a nominal charge – activities which directly relate to its religious mission or community fellowship. If such sales are done primarily to further the religious work (integral to the mission), and pricing is set only to recoup costs (not to make profits), the income is exempt. The law interprets “substantially the whole” cost-recovery to mean at least 85% of the activity’s inputs are aimed at cost recovery, allowing a small margin (SARS generally accepts that not more than 15% of the activity can be profit-oriented). The no unfair competition requirement means the church’s activity should not operate like a regular business that undercuts tax-paying competitors. For example, if a church runs a canteen for the homeless as part of its welfare ministry and charges a token fee, that could fall under this integral-cost-recovery category. Any fees from participants at a religious conference or seminar that the church itself organizes can also qualify here – such an event is directly tied to the church’s religious teachings (the core PBA) and if the registration fees are set just to cover venue, materials, and speaker costs, it’s basically a cost-recovery exercise in furtherance of the religious mission. Income from a genuinely mission-related conference is thus exempt as long as it’s run with the intent to break even rather than to profit. (The church must also ensure this doesn’t become a disguised commercial conference business targeting the general market, which could be seen as competing with for-profit event organizers – but a faith-based conference for its members or interested public, priced to cover costs, would normally be safe.)
• Occasional Trading Activities (Fundraising Events): The undertaking or activity is of an occasional nature and is conducted substantially with voluntary assistance (unpaid helpers). This category is meant for intermittent fundraisers or charity events rather than continuous operations. Many religious organisations rely on occasional events like fêtes, jumble sales, charity dinners, fun runs, or concerts to raise funds. If a church holds a spring fair once a year, run largely by volunteers from the congregation, the money raised is fully exempt under this provision. The law recognizes that these events are not regular business and are driven by charitable goodwill. Importantly, “occasional” implies infrequent or irregular events – for example, a once-off or annual event is fine, whereas running a weekly market stall might not qualify as “occasional.” Also, the volunteer condition requires that the event isn’t predominantly carried out by paid staff; the bulk of the work should be by non-compensated volunteers donating their time. Most church bake sales, raffles, one-day conferences or outreach events, etc., would satisfy this, rendering their proceeds tax-free. (If a church-hosted conference is a rare event and staffed by volunteers, it could even meet this category, though if it squarely fits the integral category as part of ministry, that is usually the primary basis for exemption as discussed above.)
• Ministerial Approval (Specific Trading Activities): The undertaking or activity has been approved by the Minister of Finance by notice in the Government Gazette as a permissible trade for PBOs. This is a less common category, used to explicitly allow certain revenue activities that might not clearly fit the above two categories but are considered beneficial or low-risk. The Minister will consider factors like the benevolent nature of the activity, its connection to the PBO’s purposes, profitability, and potential distortive effect on the market before granting approval. One example historically approved by the Minister is the operation of charity shops selling donated goods to the public – these can be important fund-generators for PBOs (including religious charities) and have been approved because they are benevolent and don’t unfairly compete (goods are donated, staff often volunteer). If a church runs a second-hand bookstore or thrift shop with donated items to raise funds for its soup kitchen, and this type of activity is Minister-approved, it falls under (cc) and all such income remains exempt. In practice, churches rarely need to seek individual approval for an activity, since most of their typical revenue efforts fall under (aa) or (bb), but the Gazette approval route exists for special cases.

If a church’s trading activity falls entirely within any of the above categories, all receipts from that activity are exempt from income tax. There is no cap on the amount – the exemption is qualitative (based on the nature of the activity), not quantitative. The law thus encourages PBOs to keep trading activities either inherently tied to their mission or modest/occasional, rather than running large commercial enterprises. Notably, the Act uses the word “or” between these permissible categories, meaning an activity need only meet one of the categories to be exempt. A church could even have multiple different trades, some falling under (aa) and others under (bb), and each would be evaluated for exemption separately. As long as each business activity is permissible, the income from it remains tax-free.

Taxation of Other (Non-Permissible) Trading Income

Inevitably, some NPOs engage in trading activities that do not meet the above “permissible” criteria. For example, a church might have a year-round commercial enterprise (like a coffee shop or leasing out property on an ongoing basis) that is more than occasional and perhaps generates significant profit beyond cost recovery. Rather than disqualify the entire PBO or tax all its income, South African law provides a partial taxation regime: such non-permissible trading income is taxable, but only to the extent it exceeds a certain basic exemption threshold. Section 10(1)(cN)(ii)(dd) sets out this basic exemption. In any year of assessment, the PBO’s aggregate income from trading activities that do not qualify as permissible will be exempt up to the greater of 5% of the PBO’s total receipts and accruals for that year or R200,000 (two hundred thousand rand). Stated differently, a PBO is allowed a small measure of taxable trading income each year without paying tax – whichever is larger between 5% of its annual income or R200k is treated as non-taxable. Any non-permissible trading receipts beyond that threshold become taxable (included in the PBO’s taxable income).

For example, if a church PBO had total revenues of R600,000 for the year, of which R100,000 came from a continuous commercial activity (unrelated to its religious work), the basic exemption would be calculated as the greater of 5% of R600k (which is R30,000) or R200,000. Here, R200,000 is greater, so up to R200k of trading income could be exempt. The church’s R100k of trading receipts is below this threshold, so the entire R100,000 would be exempt from tax in that year. The rest of the church’s income (donations, etc.) is automatically exempt since it’s not from trading. Conversely, if the church had R500,000 of non-permissible trading income in a year with total receipts of, say, R1 million, the basic exemption would be the greater of R50,000 (5% of R1m) or R200,000 – which is R200,000. The first R200k of that trading income would be exempt, but the remaining R300,000 would be taxable. The PBO would then have to pay income tax on that R300k portion. This partial taxation mechanism ensures a PBO pays tax only on excessive or purely commercial income, while its core charitable income remains protected. The taxable portion of a PBO’s income is subject to tax at normal rates applicable to PBOs. Currently, PBOs are taxed at the corporate income tax rate (which was 28%, now 27% for companies from 1 April 2023 onward) on their taxable income. This rate applies irrespective of whether the PBO is formed as a trust or a nonprofit company – tax legislation treats the PBO’s taxable profits like those of a company. (Prior to recent amendments, PBO trusts could be taxed at trust rates, but now the law prescribes the corporate rate for PBO taxable income, aligning with 27% for most.) Importantly, even if part of its income is taxed, the organisation does not lose its overall PBO tax-exempt status – it simply pays tax on the non-exempt portion. However, if the scale of commercial activities grows so large that the principal purpose of the organisation might be seen as running a business rather than carrying out PBAs, SARS could question whether it still meets the section 30 “sole object” requirement. In extreme cases, a PBO doing extensive trading unrelated to its mandate could face revocation of approval rather than just partial taxation, though typically SARS will first apply the partial tax rules as long as the formal PBO conditions (in founding documents, etc.) are intact.

When Do Specific Types of Income Become Taxable? (Rental & Conference Fees)

Two common income streams for churches and religious NPOs are rental income (for example, letting out church property) and fees from religious conferences or events. Whether these are taxable depends on the principles above – namely, are they part of a permissible related activity or are they treated as commercial income subject to the basic exemption? Below is an analysis under South African law and SARS guidance:

• Rental Income: Rent earned from leasing property is generally viewed as trading income for a PBO, unless the property use is directly tied to the organisation’s public benefit activities. In most cases, when a church rents out its manse, hall, parking lot, or other facilities to the public for a fee, it is not considered integral to carrying out the church’s religious mission – it’s done to raise additional funds. SARS explicitly classifies such rental activities as unrelated commercial trading by the PBO. For example, a church PBO might let out its hall and parking during the week for weddings, birthday parties, concerts or conferences that are purely secular uses; SARS notes this is a business activity unrelated to the PBO’s sole object (religion). Consequently, the rental income does not fall under the permissible trading categories – it’s not integral to the religious PBA, nor is it occasional if done regularly, and it’s not minister-approved. It is therefore treated as taxable trading income to the extent it exceeds the basic exemption. In practical terms, the church can earn some rental income each year without tax (up to the R200k/5% threshold, as discussed), but if rental receipts go beyond that, the excess is subject to income tax. SARS provides an illustrative example: A PBO that lets out unused portions of its property had rental receipts of R90,000 against total income of R590,000 for the year. The rental was not from a permissible activity and thus “is regarded as a commercial trading activity”, but because R90k is below the threshold (greater of 5% of R590k or R200k, which was R200k), the entire rental was exempt under the basic exemption. Had the rental been, say, R300,000, the PBO would have been taxable on the portion exceeding R200k. It’s worth noting that if rental activity is very minimal or truly infrequent (for instance, a once-off leasing of a hall for a special event), the PBO might argue it’s an occasional trading activity (category (bb)) and thus fully exempt. But typically, rental arrangements involve continuous or repeated use of assets to generate income, which SARS views as a business enterprise. Churches should thus be aware that regular rental income is taxable beyond the small allowable limit – being tax-exempt does not give carte blanche to run a property rental business. Moreover, if a church’s primary activity became renting properties (rather than worship or ministry), it would endanger its PBO status altogether. The Tax Court in ABC Company v CSARS (mentioned earlier) essentially dealt with a similar issue: an entity focused on renting housing units did not clearly meet the PBA criteria and was denied PBO approval. While that case hinged on the definition of the PBA (affordable housing for the poor), it reinforces that the PBO regime is not intended to shelter broad rental businesses unless they are tightly aligned with a charitable objective (such as providing below-market housing to the poor as a form of relief). A church renting property at market rates to the public is simply engaging in commerce, so SARS will tax that income accordingly. The church must keep proper records and declare such income in its annual return (IT12EI for exempt institutions), even though part or all might be offset by the basic exemption.
• Income from Religious Conferences: Many churches organise conferences, retreats, workshops or seminars for religious teaching or community building. The tax treatment of fees from these events depends on the nature and purpose of the conference. If the conference is fundamentally an extension of the church’s religious activities (for example, a Bible teaching conference, youth ministry camp, or interchurch convention for worship), then charging attendees a registration fee or asking for contributions is often just a way to cover the costs of the event. Such income can be seen as integral to the church’s public benefit activity (advancement of religion) rather than a separate business. Under section 10(1)(cN)(ii)(aa), if the event is run on a substantially cost-recovery basis – meaning the fees are set roughly to defray expenses (venue hire, materials, meals, speaker travel) – and any surplus is incidental, this qualifies as a permissible trading activity. The conference fees in this scenario would be fully exempt from tax as part of the PBO’s related income. Essentially, the church is carrying out its PBA of religious teaching/education during the conference, and the fees are a means to facilitate that activity, not a profit-making end in themselves. This is analogous to how a school (which is a PBO for educational PBAs) might charge school fees – those fees are not taxed as business income because they directly fund the public benefit activity (education) and are integral to it. SARS’s definition of the “promotion or practice of religion” PBA explicitly includes acts of teaching and witnessing, which would cover the content of a religious conference. As long as the church is not running the conference as a commercial venture (e.g. not pricing it exorbitantly above cost, not using it primarily to generate unrelated profit), the income remains within the tax-exempt purpose. Even if the church makes a modest surplus from the event, it can be argued that “substantially the whole” of the activity was directed at cost recovery (for instance, if 90%+ of the fees went to cover costs, and a small excess resulted, it meets the 85% cost-recovery safe harbor).

In contrast, if a “conference” were more in the nature of a commercial event – say a large expo or concert hosted by the church, charging market-rate ticket prices far above the cost of production in order to raise general revenue – SARS could view this differently. A conference that is open to the general public purely as a revenue-generating exercise might fail the integral/cost-recovery test and also not be “occasional” if it becomes an annual money-spinner. For example, if a religious organisation held a paid conference that resembles a business convention (with significant profit margins or commercial sponsors) under the banner of fundraising, SARS might classify that as a trading activity not sufficiently related to the core PBA, especially if it competes with for-profit events. In that case, the fees earned would be treated as taxable income beyond the basic exemption limit. The organisation would either need to fit it under the occasional fundraising category (if it’s a rare event run by volunteers) or accept that the profits are taxable. The key determinants are the frequency, scale, and purpose of the conference: a one-off annual conference run mainly by volunteers could be exempt under (bb) (occasional events), whereas frequent conferences or those run with a profit motive push the activity into taxable territory. Most standard church-hosted religious conferences, however, tend to be occasional and mission-oriented, so they can usually be structured to fall within the tax-free parameters. Churches often keep attendance fees reasonably low (sometimes only to cover meals or materials) precisely to encourage participation and because making a profit isn’t the goal – this practice naturally aligns with the tax requirement of cost recovery and altruistic intent.

In summary, rental income earned by a church PBO is generally taxable (beyond the small statutory exemption) because it’s considered unrelated commercial income. Income from religious conferences is usually tax-exempt if the conference is part of the church’s religious activities and is run on a nonprofit basis, but if such events are operated like businesses, their income may trigger tax after the basic exemption. It’s crucial for the church to document the nature of each income-generating activity and ensure it remains within the allowed scope. By doing so – and by observing all the PBO conditions in section 30 – religious institutions can enjoy broad tax exemption on their genuine charitable and religious work, while appropriately accounting for any taxable income from side activities.

References and Legal Citations

• Income Tax Act 58 of 1962 (South Africa) – Section 10(1)(cN) (exemption of PBO income) and Section 30 (definition and requirements for PBOs). These sections were introduced to govern tax-exempt entities and impose the trading limits. Key provisions are discussed above, with interpretations confirmed by SARS guides and case law.
• SARS Tax Exemption Guide for Public Benefit Organisations (Issue 7, 18 March 2025) – A comprehensive SARS publication outlining PBO qualifications and the partial taxation system. See especially Chapter 3 on PBO requirements and Chapter 7 on partial taxation. Examples from this guide (e.g. rental income example) illustrate how the rules apply in practice.
• SARS Interpretation Note 24 (Issue 5, 31 Oct 2023) – “Public Benefit Organisations: Partial Taxation.” This binding interpretation note provides SARS’s official guidance on the trading rules in section 10(1)(cN). It defines the categories of permissible trading and details the basic exemption calculation. It aligns with the examples given in the PBO Guide.
• Tax Court Case No. 14106 (ABC Company v CSARS, Judgment 18 April 2019) – An unreported Tax Court decision (Johannesburg) examining PBO status. The case is discussed in a Cliffe Dekker Hofmeyr analysis. It highlights the strict interpretation of the “public benefit activity” requirement: the NPC in question was denied PBO approval because its objects did not fall squarely within the listed PBAs (social housing for a narrowly defined income group). This reinforces that an organisation must match its objectives to the Ninth Schedule PBAs to qualify for section 10(1)(cN) tax exemption.
• SARS “Basic Guide to Income Tax Exemption for PBOs” (Issue 3) – A shorter guide summarizing PBO criteria and approval process. It explains the need for an altruistic, non-profit motive and the prohibition on using a commercial business as the main object to fund PBAs. It also notes administrative requirements for PBO approval and retention (e.g. the need for proper founding documents and compliance with reporting duties).
• Council on Foundations – Nonprofit Law in South Africa – An overview of South African nonprofit law (2020) which notes the restriction on PBOs engaging in political campaigns and the tax benefits of PBO status, including income tax, donations tax, and others (though this report is more general).

All the above sources reflect the current law as of 2025, confirming when and how religious NPOs are exempt from income tax and when their income (like rental or conference fees) becomes taxable under South African legislation. The focus remains solely on income tax (not VAT or donations tax) in line with the query. The combination of statutory law, SARS interpretation, and illustrative cases provides a clear picture of the tax-exempt status of churches and the limits thereto.

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