Not-for-profits (NFPs) aren’t structured and run like a regular business. Tax requirements may be different, and you may be entitled to a number of tax concessions. Here’s a quick run-down on the tax obligations for NFPs.
What are the tax obligations of non-profits?
Some people may assume that not-for-profits are exempt from tax – but this is not always the case. Whether or not you’re required to pay income tax and submit tax returns depends on a number of different factors, including what type of NFP you’re running.
Charities are defined as NFPs that strictly only have charitable purposes. They are exempt from paying tax and submitting annual returns. Examples include homeless or animal shelters, disability service organisations, and religious groups. However, in order to become tax exempt, you must be registered with the Australian Charities and Not-for-profits Commission (ACNC) and endorsed by the Australian Tax Office (ATO). To receive ATO endorsement, you need to fill in a NAT 10651 application form.
If your organisation isn’t classed as a charity – for example, a sports clubs, or community or social association – you may need to self-assess to determine your income tax status. As a non-profit that isn’t a charity, you don’t need ATO endorsement, or to be registered with the ACNC, to be exempt. To compete a self-assessment, you need to go through the following steps outlined by the ATO:
- Check the list of exempt organisations
- Make sure your organisation meets all requirements
- Complete the relevant worksheet – sports or other
What potential tax concessions are available?
To help NFPs contribute more to their good cause, the government offers a number of other tax concessions that you may be entitled to:
- Fringe benefits tax (FBT) exemption: If your NFP is a registered benevolent health institution or health promotion charity endorsed by the ATO, you may be exempt from paying pay tax on employee benefits. The same applies to public or non-profit hospitals, or public ambulance services (caps apply).
- FBT rebate: If your NFP is an institution and is not government backed or a benevolent health institution, you may qualify for a FBT percentage rebate (caps apply). For the 2018 financial year and onwards this is set at 47%.
- Goods and services tax (GST) concessions: Whichever type of NFP you have, you are eligible for GST concessions. The GST threshold is also higher for NFPs. ACNC registered charities, gift deductible entities, and government schools can get additional concessions on raffles, fundraising events, and sales of donated second-hand goods.
- Deductible gift recipient (DGR) endorsement: If you receive DGR endorsement, the people supporting your organisation can claim a tax deduction for the amount of the gifts or deductible contributions donated. To get DGR endorsement, your organisation must meet certain requirements set out by the ATO.
- Refund of franking credits: You may be entitled to a refund of franking credits, that is, refunds on any dividends you receive a result of your NFP investing money elsewhere.