Taxation

Incorporated associations are subject to taxation but may be eligible for certain concessions.  This chapter provides a basic overview of taxation obligations and concessions. 

Important

Taxation issues can be complex and it is important to seek expert advice when dealing with these matters. For detailed information on not-for-profit taxation visit the Australian Taxation Office (ATO) website at www.ato.gov.au/nonprofit  or telephone 1300 130 248.

Key points

  • Incorporated associations are subject to taxation unless a relevant tax exemption applies.
  • Some associations may be eligible for taxation concessions.
  • Incorporated associations that employ staff are subject to PAYG withholding obligations, and may be subject to paying fringe benefit tax.
  • Incorporated associations are required to pay goods and services tax on some goods and services, and they are exempt from others.  This is a complex area of taxation and associations should seek professional advice.

Taxation concessions available for some associations

Tax concessions are available for a range of not-for-profit organisations, including charities, public benevolent institutions and other types of incorporated associations. Concessions include:

  • exemption from income tax,
  • rebates to reduce fringe benefits tax (FBT), and
  • goods and services tax (GST) concessions.

Not-for-profit status

To qualify for these tax concessions, an organisation must be a not-for-profit organisation which does not operate for the financial gain of its members. Incorporated associations are by legal definition not-for-profit organisations, and therefore many will be eligible for one or more tax concessions.

Charities

A charity is a fund or institution that pursues charitable purposes that are of public benefit. To be recognised as a charity by the ATO, and therefore eligible for charity tax concessions, an organisation must:

  • be not-for-profit;
  • exist for the benefit of the public or the relief of poverty;

have a purpose that is a charitable purpose under the law; and

be registered with the Australian Charities and Not-for-Profits Commission (the ACNC).

Charitable purposes

In terms of Australian taxation law, charitable purposes are those directed towards:

  • the relief of poverty where  the benefit is provided to persons in a particular class.
  • the advancement of education.
  • the advancement of religion where the religious purpose is for the benefit of the community.
  • advancing social or public welfare.
  • other purposes that are beneficial to the community. For example animal protection, health promotion, aged care and preservation of cultural and historical sites.

Sporting, recreational, social, political or promotional purposes are not considered charitable.

Australian Charities and Not for Profit Commission

The Australian Charities and Not-for-profits Commission (ACNC) is responsible for determining charity status for all federal tax purposes. As part of its status determinations, the ACNC also decides whether a charity is a public benevolent institution (PBI) or health promotion charity (HPC).

The ACNC will be responsible for administering tax concessions relevant to charities, including:

  • income tax exemption
  • Fringe Benefits Tax (FBT) rebate or exemption
  • Goods and Services Tax (GST) charity concessions
  • Deductible Gift Recipient (DGR) status.

The ATO remains responsible for deciding eligibility for charity tax concessions and other Commonwealth exemptions and benefits. A charity must be registered with the ACNC before it can receive any charity tax concessions from the ATO.  For more information concerning charities and taxation, visit the ACNC website at www.acnc.gov.au.

Types of tax concessions

All charities that register with the ACNC and some incorporated associations can apply for the following tax concessions.

Income tax exemptions

Income tax applies to any taxable income received by an organisation. 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 and an application must be made to the ATO for endorsement as a tax concession charity.

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 self assessment to determine whether or not it is eligible for tax exemption. The ATO website also has useful information about self-assessment.

If an association is exempt 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.

Registering with the ATO

To apply for taxation concessions and comply with taxation obligations an association may need to register for an Australian Business Number (ABN). This can be used to:

  • register for GST and claim input tax credits;
  • register for PAYG withholding;
  • deal with investment bodies;
  • apply to the ATO for endorsement as a deductible gift recipient or a tax concession charity;
  • deal with other government departments and agencies; and
  • deal with the ATO on tax matters.

To apply for an ABN visit the Australian Business Register’s website at www.abr.gov.au. Application forms can also be downloaded from the ATO website or submitted through a tax agent.

Goods and Services Tax

Goods and Services Tax (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 paid on each transaction in the supply chain.  GST-registered businesses are liable to pay the GST on the goods and services they supply, which they generally aim to recover from the buyer. These businesses can also generally claim back the GST they pay on business purchases or supplies as input tax credits. 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.

Associations must register for GST if their annual turnover is $150,000 or more, but can choose to register if their annual turnover is lower. GST concessions are also available to not-for-profits who are registered charities with the ACNC, endorsed to receive GST concessions and organisations registered as deductible gift recipients.  

More information on GST concessions and how to register for GST can be found on the ATO website.

Fringe Benefits Tax

Fringe Benefits Tax (FBT) is paid on any benefits that an employer provides to their employees outside their salary or their superannuation, such as the use of a work car or phone. 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. 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.

Registered charities and associations that are public benevolent institutions or health promotion charities may be eligible for an exemption from FBT. Remember, an association 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 and how to register may be found on the ATO website.

Deductible gift recipient (DGR) status

As well as applying for the tax concessions listed above, charities can apply for DGR status when registering with the ACNC.

All DGRs should review whether they are required to register with the ACNC by following the guidance provided by the ATO. For a short summary, you can also read the ACNC factsheet.

Public benevolent institutions

A public benevolent institution (PBI) is a not-for-profit institution set up for the relief of poverty, sickness, suffering, distress, misfortune, disability or helplessness. Some charities will be classified as PBIs.  For PBI status, the emphasis is on the provision of a service directly to those people requiring 'benevolent relief' in order to meet their particular needs for example hostels for homeless people, disability support, crisis care and emergency relief services.

Not-for-profit associations that do not provide direct benevolent relief will not be assessed as public benevolent institutions, despite their good deeds. 

More detailed information about PBIs in available on the ACNC website.

Tax concessions from state and local governments

There are a number of tax concessions available to charities from state and local governments including:

  • stamp duty (a tax on some financial and property transactions),
  • payroll tax (a tax on wages that exceed a certain threshold paid by employers) and
  • land tax (a tax on land owners).

Each state and territory has different requirements for accessing these concessions.  Some organisations may be eligible to apply for exemptions from state taxes. Property transfers by incorporated associations on amalgamation and surplus property distributions on cancellation or wind up may be exempt from the requirements to pay stamp duty. For information about payroll and land taxes, stamp duty and compliance requirements in Western Australia contact the Department of Finance:

Department of Finance (WA)
Locked Bag 11 Cloisters Square WA 6850
General Enquiries: 6551 1000
Website: www.finance.wa.gov.au
Email: customerservice@finance.wa.gov.au

 

Pay As You Go (PAYG)

Associations are required to withhold an amount from an employee's pay and send this to the ATO.  This is called a PAYG withholding obligations.  The amount of money that is withheld depends on how much the employee earns and the information the employee has provided in the Tax File Number Declaration. Associations are still subject to these requirements even if exempt from income tax obligations.