In AB Trust v The Commissioner SARS (case number 13254), heard at the Tax Court in Cape Town, the facts were that SARS had refused to register a trust as a tax- exempt organisation. The trustees also wanted to be able to
issue tax deductible receipts to donors. The relevant sections of the Income Tax Act are Sections 30 and 18. When the application was refused, the trustees appealed to the Income Tax Court.
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A Section 21 company was the founder of the trust. As such, it had applied for tax exemption at an earlier date, and had been refused. It had nonetheless persisted in its efforts to gain approval as a tax-exempt organisation. At one point, the company had indeed received approval, but this had later been summarily withdrawn.
The company had then been advised to form the trust for the specific and sole purpose of poverty relief, community development and anti- poverty initiatives. SARS said it had refused the trust’s application because a narrow interpretation ought to be given to the term ‘poverty relief’, which is not defined in the Act. The trust’s activities included the establishment of tourist routes and a website to market the routes and the services offered to tourists. SARS contended that well-off tourists would also benefit from the trust’s activities.
A novel approach to poverty relief
The trust maintained that it had indeed met all the requirements of Section 30. Tourism, it said, was the platform that would
be used to create jobs while at the same time promoting culture and conservation of the environment. It appears that the
trustees envisaged a new approach and set of solutions the novelty of which was not appreciated by SARS. The court called for oral evidence and heard extensive testimony from one of the founders of the trust. The judge was satisfied that the proposed public benefit activities were benevolent in nature and that no one connected to the trust was likely to receive undue benefit other than reasonable remuneration.
‘Within the framework’
The judge further held that, on the evidence presented, the trust had an established process in its engaging with the community
in order to provide attractions for tourists in rural areas and that the stated objectives of the trust fell squarely within the framework of activities listed in the 9th Schedule. The refusal of SARS to grant the trust tax-exempt status was therefore set
aside, but the order to grant tax-deductible receipts was refused by the court. This would only be allowed, it said, once the trust had satisfied SARS that its activities will be exclusively carried out within the borders of South Africa.
