Are you thinking about starting your own charity or non-profit organisation? Compared to a regular small business, a non-profit has of a number of different obligations and tax requirements. Here’s what you need to know before starting your own non-profit organisation.
What is a non-profit organisation?
Put simply, a not-for-profit (NFP) is an organisation that provides services to meet a social or community need. They’re not run for profit – or more specifically – for private financial gain, but are instead set up solely to achieve philanthropic goals. There are two main types of NFPs – charities and non-charities. To be considered a charity, all of your activities must have a charitable objective. However, that doesn’t include operational essentials. Examples of non-charities are sports and recreational clubs, childcare, art and medical centres, and neighbourhood, professional, and business associations.
How are non-for-profits different from a regular business?
Whereas the main goal of a regular business is to turn a profit, the goal of a NFP is to provide for a social need. Instead of being concerned with maximising profits, the focus for a non-profit is ensuring revenue is greater than the costs. Another big difference is ownership. NFPs can’t be privately owned or distribute earnings to employees or members/shareholders. Instead, any income must be reinvested back into the organisation’s activities and mission – or into another NFP if the organisation winds up.
How is a non-for-profit structured?
In Australia, NFP organisations can be legally structured as:
- An unincorporated association
- An incorporated association
- A company
- A cooperative
- An Indigenous corporation
- A trust
The structure you choose should make sense for the specific type of NFP and how it will be run. It will determine things like how you hold meetings, how many members you need, decision-making processes, debt liability, reporting requirements, and tax obligations.
What are the tax obligations for not-for-profits?
Tax and reporting requirements for non-profits can vary widely depending on the specifics of the organisation. Tax concessions non-profits may be entitled to access include:
- Income tax exemption
- Fringe benefits tax (FBT) exemption or rebate
- Goods and services tax (GST) concessions
- Deductible gift recipient (DGR) endorsement
- Refund of franking credits
To access these concessions, charities must register with the ACNC and be endorsed by the Australian Tax Office (ATO). Non-charities, on the other hand, can self-assess – you’ll find the steps to take on the ATO website – but the ATO must endorse you to obtain DGR status. ATO endorsements, however, are subject to a formal approval process. And to access the various concessions and comply with your tax obligations, you must register for an Australian business number (ABN), AUSkey, GST, FBT, pay-as-you-go (PAYG) withholding, fuel tax credits, and other taxes.