NFP organisations that are required to lodge use the Company tax return. This guide does not cover all the items that may apply to NFP organisations.
The following tips will help you to avoid common errors:
- Relevant period
- Item 2 Description of main business activity
- Item 3 Status of company
- Item 6 Calculation of total profit or loss
- Item 7 Reconciliation to taxable income
- Item 15 Licensed clubs only
Relevant period
An entity’s income year for the purposes of tax law is usually the period of 12 months ending on 30 June each year.
If you do not write any dates in this field, then your organisation will be treated as having a 1 July to 30 June income year.
Common errors: dates shown incorrectly
We find 2 main errors:
- writing a period other than ending 30 June, without having an approved substituted accounting period (SAP)
- having an approved SAP, but not writing any dates.
Consequence of these errors
We may return your tax return as incomplete and ask you to lodge it with the approved SAP date. We will consider that you have not lodged a tax return until you lodge your corrected tax return.
We may approve a SAP retrospectively, but this can result in:
- pay as you go instalments being allocated to a wrong year
- incorrect due dates for lodgment
- delays in the processing of refunds
- the application of penalties.
Solutions
An entity that wishes to adopt a SAP can only do so with the Commissioner of Taxation’s approval.
An entity with an approved SAP should use the company tax return for the correct income year. For example, if an organisation has an approved SAP with a balance date between:
- 1 July 2021 and 30 November 2021 inclusive, it should use the Company tax return 2021
- 1 December 2021 and 30 June 2022 inclusive, it should use the Company tax return 2022
How you know if your organisation has an approved SAP
We would have sent you a letter confirming your approved SAP.
You can also check by phoning us on 1300 130 248.
Granting of a SAP
A SAP may be approved if your organisation can demonstrate that its circumstances are out of the ‘ordinary run’.
Circumstances which are out of the ‘ordinary run’ include:
- an ongoing event, industry practice, business driver or other ongoing circumstance which makes 30 June either inappropriate or impractical as a balance date
- alignment of balance dates within a group.
While it is not possible to set out all the circumstances in which a SAP may be granted, Law Administration Practice Statement PS LA 2007/21 Substituted Accounting Periods (SAPs) contains examples of facts and circumstances that may be considered relevant in deciding if a SAP should be granted.
Item 2 Description of main business activity
Item 2 requires an entity to describe as accurately as possible the business activity from which it derives the most gross income.
Write at B the appropriate industry code for the entity’s main business.
Common error: inappropriate industry code
An inappropriate industry code is entered at B.
Consequence of this error
An incorrect code may result in your organisation:
- not receiving a necessary service or material from us
- being inappropriately selected for audit.
Solutions
Write the code that most accurately describes your business activity.
Industry codes commonly used by taxable non-profit member-based organisations are listed in the following table.
Industry codes
Code and description |
Organisations covered |
|---|---|
45301 Clubs – licensed |
Organisations mainly engaged in providing hospitality services to their members. These hospitality services include gambling, sporting or other social or entertainment facilities. Examples:
|
45302 Clubs – not licensed, hospitality, with staff |
As above. |
95599
|
Organisations mainly engaged in activities which promote the interests of their members (except religious, business and professional, and labour association services). Also included are organisations not elsewhere classified providing a range of community or sectional interests or in providing civic and social advocacy services. Examples:
|
95510
|
Organisations mainly engaged in promoting the business interests of their members (except of organised labour associations and union members). Examples:
|
For a full listing of industry codes. see Business industry code tool
Item 3 Status of company
Item 3 requires an entity to select the most appropriate description of its status.
You need to select one box from C1 to C3 and one box from D1 to D10.
You may also need to select F1 or G1, Z1 or Z2, and one box from E1 to E3.
Common error: D1 to D10 incorrectly selected
An incorrect box is selected from D1 to D10.
Consequence of this error
Marking an incorrect box may result in your organisation:
- not receiving a necessary service or material from us
- paying an incorrect tax rate
- being inappropriately selected for audit.
Solutions
Organisations that are ‘non-profit companies’ should select D3 Non-profit.
For administrative purposes, non-profit organisations that are ‘other taxable companies’ should select D10 Public.
Consolidation
If your organisation is a non-profit company and a head company of a consolidated group, you will need to select Z1 Consolidated head company.
If your organisation is a non-profit company, it cannot be a subsidiary member of a consolidated group or a multiple entry consolidated (MEC) group. You cannot select Z2 Consolidated subsidiary member.
Item 6 Calculation of total profit or loss
The Income and Expenses amounts you write at item 6 are accounting system amounts and correspond to the amounts in the financial statements for the income year, except for the depreciation expenses of small business entities using the simplified depreciation rules.
Common errors: income and expenses incorrectly shown
Income and expenses from financial statements are often shown incorrectly at item 6. We see 2 main errors:
- showing incorrect amounts
- using incorrect labels.
Consequence of these errors
Errors in item 6 could lead to your organisation:
- paying an incorrect amount of tax
- being inappropriately selected for audit.
Solutions
- Mutual receipts and expenses
- you must include receipts and expenses that relate to mutual dealings with members at the relevant labels in the item
- it is important you include these items at item 6 in order to correctly reconcile the accounting total profit or loss to the taxable income or loss in item 7 Reconciliation to taxable income or loss.
- I Fringe benefit employee contributions
- write all payments that the entity has received from recipients of fringe benefits at I Fringe benefit employee contributions
- employee contributions form part of the employer’s or associate’s assessable income if employees make payments for fringe benefits that they have received
- some important points to note about employee contributions are
- an employee contribution may be made only from an employee’s after-tax income
- you cannot use an employee contribution towards a particular fringe benefit to reduce the taxable value of any other fringe benefit
- in certain circumstances, journal entries in your accounts can be an employee contribution
- an employee contribution paid directly to you (including those received by journal entry) are included in your assessable income (as a general rule, the costs you incur in providing fringe benefits are allowable deductions)
- an employee contribution paid to a third party who is not an associate (for example, for the servicing of a car) is not assessable to you
- when calculating the taxable value of a benefit, you use the full GST-inclusive amount of the contribution to reduce the taxable value of the benefit.
- X Depreciation expenses
- where an entity uses the simplified depreciation rules, the actual tax deduction for depreciation is included at X
- otherwise, only write the amount of depreciation for accounting purposes.
Item 7 Reconciliation to taxable income or loss
Item 7 deals with adjustments for tax purposes to reconcile accounting total profit or loss to the taxable income or loss.
Common errors: amounts incorrectly shown
Various errors are made in item 7, including:
- the incorrect use of labels to report revenue
- expenses relating to mutual dealings with members.
Consequence of these errors
Errors in item 7 could lead to your organisation:
- paying an incorrect amount of tax
- being inappropriately selected for audit.
Solutions
- W Non-deductible expenses
- W Non-deductible expenses includes amounts that are expenses for accounting purposes but are not deductible for income tax purposes, including timing variations
- expenses relating to mutual dealings with members are included at W
- W excludes any amount included at U Non-deductible exempt income expenditure item 7.
- Depreciation or decline in value
- depreciation for accounting purposes is included at W. This is also the amount entered at X Depreciation expenses item 6
- enter the tax-deductible amount of decline in value at F Deduction for decline in value of depreciating assets item 7.
- V Exempt income
- write at V all income that is exempt from Australian tax. Do not include at V amounts that are not assessable income and not exempt income
- do not include mutual receipts at V Exempt income. Include these amounts at Q Other income not included in assessable income item 7.
- Q Other income not included in assessable income
- Q includes amounts that are income for accounting purposes but not assessable for income tax
- mutual receipts are included at Q.
Item 15 Licensed clubs only
Only licensed clubs need to complete this label.
Write the percentage (in whole figures) of total income attributable to non-members at A Percentage of non-member income item 15.
Common errors: percentage shown incorrectly or item left blank
We see 2 main errors:
- showing an incorrect percentage
- not writing any percentage.
Consequence of these errors
Errors in item 15 could lead to your organisation:
- paying an incorrect amount of tax
- being inappropriately selected for audit.
Solutions
The percentage of non-member income is the total non-member income divided by the total income, multiplied by 100.
The percentage entered at this item differs to the percentage calculated by the Waratahs formula where:
- total income includes non-member income such as bank interest
- more than one method of apportionment has been used.