SARS recently issued a draft interpretation note about the taxation of amounts paid to missionaries. There has always been a view that amounts paid to missionaries from donations by supporters, often from outside South Africa, are not taxable because they are donations and not remuneration. Tax practitioners have not shared this view and have had to disabuse their sceptical clients of this delusion, often against resistance. The draft note comes down on the side of the tax practitioners.
The draft note commences by describing a missionary as a member of a religious mission, which consists of a group of people sent by a religious body to perform religious and social work, educational or hospital work. Missionaries often operate under the banner of a society, agency, association, fellowship or some denominational body.
Typically, a missionary is not employed by a specific organisation, but relies on contributions to meet living expenses and operating costs of the mission work. Sometimes these contributions come directly to the missionary, and sometimes via a missionary organisation that controls and administers donations and deploys them to missionaries in the field according to needs and availability of resources. And here is the reason for claims that missionaries are not taxable on contributions to them; not employed, and dependent on charitable giving.
The draft note predictably starts with paragraph (c) of the definition of “gross income” in section 1(1) of the Income Tax Act. This paragraph provides that an amount falls within paragraph (c) if it is received or accrued in respect of services rendered or to be rendered by the recipient. The paragraph makes no exception where the amount is a voluntary award, or where it emanates from outside the Republic.
“In respect of” connotes a causal relationship between the amount and the services of the missionary. The question is not: what prompted the donor to make the donation or, in the case of a controlling missionary organisation, to award the amount to the missionary? Rather the question is: why was the payment made to the recipient? This question was succinctly answered by Howie P in Stevens v CSARS [2006] 69 SATC 1 SCA. The amounts were received by the recipients because they were employees who had received a benefit directly linked to their employment, and the payments were therefore taxable.
Lest it be argued that the missionary is not employed, the case cited in the meaning of “voluntary awards”, CSARS v Kotze [2002] 64 SATC 447 C, supports the “in respect of“ argument as well as and perhaps better than Stevens v CSARS, because the taxpayer in CSARS v Kotze was not an employee of the entity, the SA Police Service, that paid him the amount. The service Kotze rendered was to alert SAPS as to what he suspected was an IDB transaction about to happen. As a result, the illicit diamond dealers were caught in the act. To reward Kotze for his public spirited action, the Commissioner of SAPS for the Western Cape awarded him with an amount maintained for this purpose. Kotze won in the tax court, where the court relied on a decision of the UK tax court that such a payment was in the nature of an accolade and not for services rendered. The fact that the recipient was Bobby Moore, captain of the only England team ever to win the FIFA World Cup, perhaps at least subconsciously influenced the court. This argument did not succeed in CSARS v Kotze, where the court found that “services need not be rendered by virtue of any contract, nor need the amount received or accrued be by reason of any contract or obligation: it can be a purely voluntary payment”.
Next, the draft note states that an amount may be a donation in the hands of the payer, but nonetheless fall within paragraph (c). Section 56(1)(k)(i) of the Act contemplates this type of situation by exempting from donations tax “any property which is disposed of under a donation as a voluntary award…the value of which is required to be included in the gross income of the done in terms of paragraph (c) of the definition of ‘gross income’ in section 1”.
Finally, the draft note makes the point that income received or accrued in respect of services has its source where the services are rendered. And this is the Republic, where the missionaries are providing their services, and not the country from which the donations come.
Although the document is in draft form, it is difficult to envisage a different conclusion in the final version.
