Tax-Free Status for Benefit Funds? Here’s What Accountants Need to Know
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If your clients run a friendly society or medical scheme, there’s a fresh update from SARS worth your attention.
SARS has released a Draft Tax Exemption Guide for Benefit Funds (May 2025). It breaks down when and how these funds can enjoy automatic income tax exemption under section 10(1)(d)(ii) of the Income Tax Act.
So, what entities qualify?
The guide focuses on two main types of funds:
Friendly societies – mutual groups that support members through sickness, old age, unemployment, or education costs. (Think: community savings groups with structure.)
Medical schemes – non-profit organisations that cover members’ medical bills.
Both must be officially registered under the Friendly Societies Act or the Medical Schemes Act to qualify.
Why it matters
✅ No income tax on contributions or investment income
✅ No need for pre-approval – the exemption applies automatically
✅ Potential savings on other taxes like donations tax and capital gains tax (depending on the fund’s structure)
But remember: qualifying doesn’t mean total exemption from all taxes. Funds still need to comply with PAYE, UIF, VAT, and similar obligations where applicable.
For Accountants
If your clients manage or advise such funds, this draft guide is essential reading. It helps clarify:
What counts as a “benefit fund”
How to stay compliant while maximising tax advantages
When other taxes (like skills levies or estate duty) still apply
📌 Heads up: The guide is still in draft form, so there’s room to submit comments or suggestions to SARS before it’s finalised.
💬 Want to comment? Email feedback to: policycomments@sars.gov.za
📄 Read the draft guide on the SARS website.
