2. Types of taxation concessions
The following sections provide a brief overview of some of the tax concessions that are available to eligible associations, and the requirements for each. In the case of associations that are charities (including PBIs), it is generally necessary to seek endorsement from the ATO in order to access any of these tax concessions. Once again, it is important to seek expert advice on whether or not your incorporated association qualifies for any of the tax exemptions or concessions.
2.1 Income tax exemption
Only certain types of not-for-profit organisations are exempt from paying income tax.
Charities and PBIs are generally exempt from income tax, but this is not automatic. As already noted, both charities and PBIs are required to apply to the ATO for endorsement as a tax concession charity. Endorsement as a tax concession charity provides exemption from income tax, as well as several other tax concessions (see the sections below).
Your association needs an Australian Business Number (ABN) to apply for endorsement. If it already has an ABN, then you can request an endorsement application pack from the ATO on 1300 130 248, or visit the ATO website.
If your association does not have an ABN, you will need to apply for one - details are provided later in this section. On the ABN application, you can advise the ATO that your organisation wants to be endorsed and the Tax Office will forward the endorsement application pack.
An incorporated association that is not a charity or PBI may still be exempt from income tax under another category. In this case, the association does not need to apply to the ATO, but can conduct its own assessment (ie self-assess) to determine whether or not it is eligible for tax exemption. For an exemption to apply, the association would need to fall within one of the following categories, each with its own further requirements:
- community service organisations;
- cultural organisations;
- educational organisations;
- employment organisations;
- health organisations;
- religious organisations;
- resource development organisations;
- scientific organisations; and
- sporting organisations.
In addition, the association may also have to pass at least one of these three tests:
- have a physical presence in Australia and conduct its activities "principally" in Australia;
- qualify to be endorsed as a deductible gift recipient; or
- be prescribed by law in the income tax regulations.
If an association is exempt under one of these categories, it will not have to pay income tax nor lodge income tax returns. If the association does not qualify for exemption, then it is taxable and must lodge tax returns each year. However, even taxable not-for-profit associations may be entitled to special rules for calculating taxable income, lodging their tax returns and special rates of tax.
An explanation of self-assessment and a useful worksheet are set out in the ATO publication Income tax guide for non-profit organisations.
The ATO website also has useful information about self-assessment.
2.2 Goods and Services Tax (GST) concessions
The GST is a broad-based tax of 10 per cent on the sale of most goods, services, real property or other things consumed in Australia.
GST is a tax on transactions that is paid at each step in the supply chain. GST-registered businesses (or those required to be registered) are liable for GST on the goods and services they supply, which they generally aim to recover from the buyer or recipient by ‘grossing up' the sale price of their goods and services. These businesses can also generally claim back the GST they paid on business purchases or supplies as input tax credits. An input tax credit is what you claim to get back the GST you pay on the price of goods and services you purchase for the business or association. The cost of GST flows along the supply chain and is finally included in the price paid by the end consumer. End consumers can't claim input tax credits, so while the liability for paying the GST rests with GST-registered businesses and organisations, the economic cost is intended to be borne by the end consumer.
The most obvious GST concession for not-for-profit associations is a higher GST registration threshold. Associations must register for GST only if their annual turnover is $100,000 or more, but can choose to register if their annual turnover is lower. Other organisations or businesses must register for GST if their annual turnover is $50,000 or more.
Associations that are also charities can access a broader range of GST concessions including:
- GST-free status for non-commercial activities;
- GST-free sales of donated second-hand goods;
- GST-free status for raffles and bingo tickets;
- Sales in connection with certain fund-raising events may be input taxed (that is, no GST liability is imposed, however no input tax credits will be available for purchases made in respect of those sales); and
- GST credits for volunteer expenses.
Remember that an association that is a charity must be endorsed by the ATO as a tax concession charity in order to access any of these additional concessions.
More information on GST concessions and how to register for GST may be found in the ATO publication Tax basics for non-profit organisations.
The ATO website also has more detailed information.
2.3 Fringe Benefits Tax (FBT)
Fringe benefits are employment-related benefits provided to an employee (or an associate of an employee) and can include the following: car, computer, housing, personal loans, health insurance and education.
If an association provides fringe benefits to its employees, the association may be liable to pay FBT. This is quite separate from income tax, and even if the association is exempt from income tax, it may still incur an FBT liability.
Benefits exceeding the total value of $2000 in an FBT year (which runs from April 1 to March 31) must be reported on an employee's payment summary as a 'grossed-up' amount. Grossing-up means increasing the value of the benefit to reflect the gross salary that the employee would have to earn to buy the benefit using after-tax dollars. These amounts must also be reported to the ATO.
Please note that reimbursing an unpaid volunteer for out-of-pocket expenses does not make them an employee. Generally, benefits provided to volunteers do not attract FBT.
The FBT concessions that will apply to some incorporated associations include:
- an exemption from FBT; and
- the FBT rebate.
Associations that are public benevolent institutions or health promotion charities may be eligible for an exemption from FBT. The exemption is subject to a cap on the annual fringe benefit amount that can effectively be paid to an employee. For the latest threshold cap that applies to your association, consult the ATO. If the cap is exceeded for any employee, the association would be liable for FBT on the excess.
Associations that are ‘rebatable employers' may be entitled to a rebate on the gross FBT payable. Rebatable employers are certain non-government, non-profit organisations. Organisations that qualify for the FBT rebate include:
- certain religious, educational, charitable, scientific or public educational institutions;
- trade unions and employer associations;
- not-for-profit organisations established to encourage music, art, literature or science;
- not-for-profit organisations established to encourage or promote a game, sport or animal races;
- not-for-profit organisations established for community service purposes
- not-for-profit organisations established to promote the development of aviation or tourism
- not-for-profit organisations established to promote the development of Australian information and communications technology resources, and
- not-for-profit organisations established to promote the development of the agricultural, pastoral, horticultural, viticultural, aquacultural, fishing, manufacturing or industrial resources of Australia.
Remember, an association that is also a charity (including a PBI) must be endorsed by the ATO as a tax concession charity in order to access the FBT exemption or the FBT rebate.
More information on FBT registration and the FBT concessions may be found in the ATO publication Tax basics for non-profit organisations.
The ATO website also has more detailed information.
2.4 Exemptions from State/Territory Taxes
Exemptions from State and Territory taxes apply to range of eligible bodies, including certain incorporated associations.
For example, under section 40(2) of the Western Australian Pay-roll Tax Assessment Act 2002, most of the salaries and wages paid by a range of bodies may be exempt from pay-roll tax. These bodies include:
- religious or public benevolent institutions;
- private hospitals run by not-for-profit organisations; and
- schools and colleges (at or below secondary level) run by not-for-profit organisations.
Charitable organisations may apply to the Commissioner of State Revenue for an exemption from pay-roll tax (under section 41).
Associations wanting to obtain exemption from Western Australian State taxes on the basis of charitable or non-profit status must put their request in writing and send it, along with a copy of their rules of association, to:
The Office of State Revenue
You can visit the State Revenue website for more information.