ClubPack (current to 19 June 2003)
Introduction
| This document has been archived. It is current only to 19 June 2003. |
Publications about taxation & the non-profit sector
CharityPack is for charities
CharityPack:
- helps you work out if you are a charity
- explains the new endorsement arrangements
- tells you how to apply for endorsement as an income tax exempt charity (ITEC), and
- outlines ABN, GST, PAYG, FBT and other taxes and obligations for charities.
ClubPack is for clubs, societies and associations which are not charities
ClubPack:
- helps you work out if your organisation is exempt from income tax
- explains your obligations if your organisation is not income tax exempt, and
- outlines ABN, GST, PAYG, FBT and other taxes and obligations for clubs, societies and associations.
GiftPack is for organisations that wish to receive income tax deductible gifts
GiftPack explains:
- who can receive tax deductible gifts
- the new endorsement arrangements
- what sorts of gifts are deductible, and
- what donors have to do to claim deductions for their gifts.
Additional publications:
A range of fact sheets and booklets including Charitable, Religious and Non-profit organisations & The New Tax System - withdrawn, are also available from sources listed in this guide. For a copy of the GST Handbook for the voluntary sector phone 13 30 88.
The information in this guide is current at June 2000.
Please get help from the ATO or a professional tax practitioner if you feel this guide does not fully cover your circumstances. We regularly revise our publications to take account of changes to the law and you should make sure that this edition is the latest. Any changes or developments occurring between editions will be explained in updates which you should request from the ATO.
As part of our commitment to producing accurate publications, a taxpayer will not be subject to penalties if it is demonstrated that a tax claim is based on wrong information contained in this guide. However, interest could be payable depending on the circumstances of the case.
About this guide
ClubPack has been prepared by the Australian Taxation Office (ATO) to help non-profit clubs, societies and associations understand their income tax entitlements and obligations.
How will this guide help you?
ClubPack will help you understand:
- how to work out if you are exempt from income tax
- the income tax obligations for organisations that are not income tax exempt, and
- even if your organisation is exempt from income tax, how other taxes and obligations may still apply.
ClubPack provides information on:
- the Australian Business Number (ABN)
- goods and services tax (GST)
- Pay As You Go (PAYG)
- fringe benefits tax (FBT), and
- State and Territory government taxes.
Who should use ClubPack?
You should use this guide if you are a non-profit club, society or association, whether incorporated or not. Common examples are sporting and recreational clubs, professional and business associations, and cultural and social societies.
Some types of organisations are not covered by ClubPack:
- companies set up to provide profits to their owners or members
- co-operatives, credit unions and partnerships
- entities established by will or instrument of trust
- government instrumentalities, and
- charities.
What about income tax exemption?
Clubs, societies and associations that are not charities can self-assess their income tax status and do not need to apply to the ATO for income tax exemption. Only some specified groups of organisations are exempt from income tax. To see if you qualify, check Income tax - are you exempt?
If you are a charity, you will need to be endorsed as income tax exempt by the ATO and should refer to the publication CharityPack . Most clubs, societies and associations are not charities. If you are unsure whether you are a charity, check Appendix 2 - Are you a charity?
What about taxable organisations?
Clubs, societies and associations that are not exempt have special income tax arrangements. These are explained in Income tax - taxable organisations
What about gift deductibility?
Clubs, societies and associations can only receive gift deductibility status if they comply with the criteria set out in income tax law. The majority of such organisations do not quality. For further information on gift deductibility, see the publication GiftPack .
What will The New Tax System mean for non-profit bodies?
The New Tax System starts on 1 July 2000. It has special features for non-profit bodies:
- giving a higher threshold for GST registration
- providing a single identifier for dealings with government
- maintaining income tax exemption for specified groups of non-profit bodies
- streamlining the payment of income tax for other non-profit bodies, and
- simplifying tax withholding arrangements.
Chapter 1 - Income tax - are you exempt?
| This document has been archived. It is current only to 19 June 2003. |
The income tax law provides that certain types of clubs, societies and associations are exempt from paying income tax. This chapter helps you work out if the income of your organisation is exempt from income tax.
The income tax obligations of clubs, societies and associations that are not income tax exempt are explained in chapter 2.
Working out if you are exempt
Organisations that are charities need to meet special requirements to be income tax exempt. Charities are explained in detail in Appendix 2 - Are you a charity? If your organisation is a charity you should not use ClubPack. Instead you should use CharityPack, available from the ATO by phoning 13 24 78.
Most clubs, societies and associations are not charities. You are not a charity if:
- you are not carried on primarily for charitable purposes
- your purpose is not for the public benefit or the relief of poverty
- you are primarily for sporting, recreational or social purposes, or
- you are primarily for political, lobbying or promotional purposes.
Table of exempt entities
The table on the following two pages gives the categories of organisation that can be exempt from income tax. Most of these categories have further requirements for income to be tax exempt. These requirements are explained in Appendix 1-Type of exempt entity.
Clubs, societies and associations that are not charities do not need to apply to the ATO for income tax exemption.
Self-assessment
The self-assessment system allows organisations to work out for themselves what their income tax status is.
You will need to take the following steps to determine whether you are exempt from income tax:
- check the table, Type of exempt entity, to see if your organisation fits into any of the categories listed. Many of the categories require the organisation to be a non-profit club, society or association. An explanation of 'non-profit'
- turn to the page in appendix 1 against your category. You may also find that you need to pass at least one of the three tests explained here, and
- the steps are summarised in the worksheet in appendix 4.
If you think you fall in any of the categories listed on the following pages, follow the directions to see if you meet the requirements for income tax exemption.
'Non-profit' is explained here.
Type of exempt entity | Page in appendix 1 |
Cultural organisations | |
art - a non-profit society, association or club established for the encouragement of art | |
literature - a non-profit society, association or club established for the encouragement of literature | |
music - a non-profit society, association or club established for the encouragement of music | |
musical purposes - a non-profit society, association or club established for musical purposes | |
Community service organisations | |
community service - a non-profit society, association or club established for community service purposes (except political or lobbying purposes) | |
Educational organisations | |
public educational institution | |
Employment organisations | |
employee association registered under an Australian law relating to the settlement of industrial disputes | |
employer association registered under an Australian law relating to the settlement of industrial disputes | |
trade union | |
Friendly societies | |
friendly society that is non-profit (except a friendly society dispensary) | |
Health organisations | |
public hospital | |
non-profit hospital - hospital carried on by a non-profit society or association | |
health benefits - a non-profit health benefits organisation registered for the purposes of the National Health Act 1953 | |
hospital benefits - a non-profit hospitals benefits organisation registered for the purposes of the National Health Act 1953 | |
medical benefits - a non-profit medical benefits organisation registered for the purposes of the National Health Act 1953 | |
Religious organisations | |
religious institution | |
Resource development organisations | |
agricultural resources - a non-profit society or association established for the purpose of promoting the development of Australian agricultural resources | |
aquacultural resources - a non-profit society or association established for the purpose of promoting the development of Australian aquacultural resources (for the year 1999-2000 and later years) | |
aviation - a non-profit society or association established for the purpose of promoting the development of aviation | |
fishing resources - a non-profit society or association established for the purpose of promoting the development of Australian fishing resources (for the year 1999-2000 and later years) | |
horticultural resources - a non-profit society or association established for the purpose of promoting the development of Australian horticultural resources | |
industrial resources - a non-profit society or association established for the purpose of promoting the development of Australian industrial resources | |
manufacturing resources - a non-profit society or association established for the purpose of promoting the development of Australian manufacturing resources | |
pastoral resources - a non-profit society or association established for the purpose of promoting the development of Australian pastoral resources | |
Tourism - a non-profit society or association established for the purpose of promoting the development of tourism | |
viticultural resources - a non-profit society or association established for the purpose of promoting the development of Australian viticultural resources | |
Scientific organisations | |
scientific institution | |
science association - a non-profit society, association or club established for the encouragement of science | |
scientific research fund - a fund established to enable scientific research to be conducted by or in conjunction with a public university or public hospital | |
Sports organisations | |
animal racing - a non-profit society, association or club established for the encouragement of animal racing | |
game or sport - a non-profit society, association or club established for the encouragement of a game or sport |
Non-profit
Many of the categories require the organisation to be a non-profit club, society or association. You will be non-profit if you are not carried on for the profit or gain of your individual members.
Organisations can satisfy this non-profit requirement if their constituent or governing documents prevent them from distributing profits or assets for the benefit of particular persons, both while they are operating and on winding up. The organisation's actions must, of course, be consistent with this requirement. This is so for both direct and indirect gains.
Example
A non-profit organisation can still make a profit. However, any profits it makes must be used to carry out its purposes. The profits must not be distributed to owners, members or other private persons.
Example
Three tests
Some organisations will only be exempt from income tax if they meet at least one of three tests. Check appendix 1 to find out whether your organisation must pass one of these tests. You do not need to read this section if the requirement does not apply to you.
The three tests are:
- physical presence in Australia:
you have a physical presence in Australia and, to the extent of your physical presence, you pursue your objectives and incur your expenditure principally in Australia - deductible gift recipient:
you are a deductible gift recipient - prescribed by law:
you are prescribed by law in the income tax Regulations, and you are located outside Australia and are exempt from income tax in your country of residence.
Physical presence in Australia test
This test has two elements:
- do you have a physical presence in Australia? and
- to the extent you have a physical presence in Australia, do you pursue your objectives and incur your expenditure principally in Australia?
If you do not meet these requirements you may still satisfy the test - see Disregarded amounts.
Physical presence
An organisation has a physical presence in Australia if it is wholly in Australia, or it has a division, branch or sub-division in Australia.
It does not have a physical presence in Australia if it is present in Australia only through an agent, or it merely owns investment property in Australia.
Objectives and expenditure principally in Australia
If an organisation has a physical presence in Australia only, it must pursue its objectives and incur its expenditure principally in Australia.
Principally means mainly or chiefly. Less than 50 per cent is not principally.
The pursuit of objectives in Australia can include things done offshore if they are only a means of pursuing those objectives.
For example, sending employees to an offshore conference to aid their efficiency for the Australian objectives will be pursuing objectives in Australia.
Minor offshore expenditure is acceptable.
Example
If the organisation has a physical presence in Australia as well as another country, it is necessary to work out the extent to which it is physically present in Australia. Then it is only to that extent that the purposes and expenditure must be principally in Australia.
This means that an organisation which, when viewed as a whole, does not principally have its purposes and expenditure in Australia can still meet the physical presence in Australia test.
Example
Example
Disregarded amounts
An organisation may still meet the physical presence in Australia test even if it does not, in fact, pursue its purposes and incur its expenditure principally in Australia, to the extent it has a physical presence in Australia. This will depend on its distributions of disregarded amounts.
Disregarded amounts are amounts that the organisation receives as:
- gifts, including testamentary gifts
- proceeds from raffles, dinners, auctions, jumble sales and similar fundraising activities, or
- government grants.
It is assumed that any offshore distributions are made first from any disregarded amounts that are able to be distributed offshore. If a disregarded amount cannot be distributed offshore, the assumption does not apply to it. For example, government grants made only for use in Australia, or if a gift of land is physically in Australia, are not assumed to be distributed offshore.
The effect of making this assumption is that offshore distributions can be made up to the total of these amounts without jeopardising entitlement to exemption.
Example
Deductible gift recipient test
The deductible gift recipient test requires that you are a deductible gift recipient (DGR). DGRs are entities to which donors can make income tax deductible gifts. They are explained in detail in the ATO publication GiftPack which is available by phoning 13 24 78. The following is a brief explanation of DGRs.
From 1 July 2000, DGRs:
- are listed by name in the income tax legislation, or
- have received a notice from the ATO stating they have been endorsed as DGRs.
If you are listed or you are endorsed as a DGR in your own right you meet the deductible gift recipient test.
An organisation will not meet the deductible gift recipient test if it is endorsed as a DGR only for a fund or institution that it operates.
Example
Endorsement of DGRs applies only from 1 July 2000. For an organisation to work out, in the period up to 30 June 2000, whether it will meet the deductible gift recipient test after that date, it can treat itself as a DGR if:
- it reasonably considers itself to be entitled to endorsement as a DGR
- its endorsement as a DGR is for the entity in its own right (and not only for a fund or institution that it operates), and
- it has lodged an application for that endorsement.
If its application for endorsement as a DGR is later rejected, the organisation will need to determine whether it meets the physical presence in Australia test or the prescribed by law test (see below). If it does not meet either test, it will not be exempt and may have to lodge an income tax return.
Prescribed by law test
Organisations can be prescribed by name in the income tax Regulations. The Government decides which institutions will be prescribed.
At the time of publication, only one organisation had been prescribed for these purposes. Applications for prescription can be sent to the ATO which will forward them to the Government for consideration.
If you are not listed by name in the income tax Regulations for exemption purposes, you do not meet this test.
If you are prescribed, to meet this test you must also be located outside Australia and be exempt from income tax in your country of residence.
Now that you've gone through this chapter, appendix 1 and the worksheet in appendix 4, check the following table for what to do next.Exempt | Not exempt | Unsure |
If you work out you are income tax exempt:
| If you work out you are not income tax exempt:
| If you can't work out if you are income tax exempt:
|
Other taxes - irrespective of whether you are exempt from income tax, you may have obligations for other taxes - see chapter 3. | ||
Chapter 2 - Income tax - taxable organisations
| This document has been archived. It is current only to 19 June 2003. |
In this chapter we explain the income tax consequences for taxable organisations: that is, those that are not income tax exempt.
This chapter explains:
- whether a taxable organisation is a non-profit company
- what rate of income tax applies
- whether income tax returns need to be lodged, and
- how to calculate taxable income.
How to pay income tax is outlined in Pay As You Go in Chapter 3.
This guide does not cover the special taxation arrangements for certain friendly societies, trade unions and employee associations (registered organisations) which are exempt for only some of their income.
Are you a non-profit company?
Quick Reference
Clubs, societies and associations are generally treated as companies for income tax purposes. In this chapter there are two categories of companies applying to clubs, societies and associations:- non-profit companies, and
- other taxable companies.
Clubs, societies and associations are generally treated as companies for income tax purposes, but there may be situations where, due to the relationship between the members, the organisation is more correctly treated as a partnership. A club, society or association that is exempt from income tax (see chapter 1) will be exempt whether it is a partnership or a company.
Non-profit clubs, societies and associations that are treated as companies (that is, non-profit companies) have the benefit of special rates of tax. In circumstances where a club, society or association is more correctly treated as a partnership, it will not itself be taxable and its members will disclose in their individual return their share of the net income of the partnership. It will therefore not have the benefit of special rates of tax afforded to non-profit companies. As circumstances where such organisations will fall into this category will be rare, partnerships are not further discussed in ClubPack.
This chapter looks at the income tax consequences for clubs, societies and associations that are companies and are not exempt. In this chapter clubs, societies and associations that are not exempt are referred to as either 'non-profit companies' or 'other taxable companies'.
Non-profit companies and other taxable companies have some different tax obligations. Apart from the different rates of tax for non-profit companies, they also have special arrangements for lodging income tax returns. These are explained later in this chapter.
Non-profit companies
For an organisation to be a non-profit company:
- it must be a company that is not carried on for the purposes of profit or gain to its individual members, and
- its constituent documents must prohibit it from making any distribution, whether in money, property or otherwise, to its members.
An organisation can be a non-profit company and still make a profit. However, any profits it makes must be used to carry out its purposes. The profits must not be distributed to the members.
Example
The prohibition on distributions applies while the organisation is operating and on its winding up. If it permits the organisation's members to transfer the assets to themselves on winding up, it is not a non-profit company.
A non-profit company can make payments to its members as bona fide remuneration for services they have provided to it, and as reasonable compensation for expenses incurred on behalf of the organisation.
The income tax law does not prescribe a form of words that a non-profit company must have in its constituent documents. The following example clauses would be acceptable, as long as other clauses were not contrary to them. The organisation's activities must be consistent with the clauses.
Example
Organisations carried on for the joint or common benefit of their members can qualify as non-profit companies. An example would be a professional association established to advance the professional interests of its members. However, the association must not be carried on for the profit or gain of its individual members.
Strata title bodies corporate do not qualify as non-profit companies - see Taxation Determination TD 93/73. Non-profit company also includes a friendly society dispensary.
Rates of income tax
Quick Reference | Non-profit companies | Other taxable companies | |
Income year | |||
Taxable income | Rate of tax | Rate of tax | |
1999-2000 | 0 - $416 | Nil | 36% |
2000-01 | 0 - $416 | Nil | 34% |
2001-02 and later years | 0 - $416 | Nil | 30% |
Non-profit companies
For non-profit companies, the income tax payable depends on the level of taxable income.
If the taxable income is $416 or less for a year, no tax is payable.
Example
If a non-profit company has a taxable income between $417 and the threshold, the amount in excess of $416 is taxed at 55 per cent.
Example
If the taxable income is more than the threshold, the ordinary company tax rate is applied to all the taxable income as follows:
Income year | Threshold | Rate |
1999-2000 | $1204 | 36% |
2000-01 | $1089 | 34% |
2001-02 and later years | $915 | 30% |
Example
Other taxable companies
Other taxable companies are taxable from the first dollar. That is, they are taxable on all levels of taxable income and there is no threshold. The rates of tax are:
Income year | Rate |
1999-2000 | 36% |
2000-01 | 34% |
2001-02 and later years | 30% |
Example
Special rates
There are special rates of tax for life assurance companies, credit unions and registered organisations (including trade unions and friendly societies) carrying on insurance business. They are not discussed in this guide.
Lodging income tax returns
Quick Reference
- If taxable income is more than $416, an income tax return must be lodged.
- If taxable income is $416 or less, an income tax return is not required for an Australian resident, unless specifically requested.
- A tax return is required regardless of the amount of taxable income.
Non-profit companies
Non-profit companies with taxable income of $416 or less a year that are Australian residents will not be required to lodge an income tax return because the income is below the taxable threshold. However, the ATO may notify a particular company that it is required to lodge a return.
Non-profit companies with taxable income of more than $416 a year are required to lodge an income tax return for that year.
To lodge a return, organisations will need to use Form C (return form for companies). These forms and the accompanying instruction booklet are available from the ATO.
Other taxable companies
Other taxable companies are taxable on any amount of taxable income. They are required to lodge an income tax return each year.
They will need to use Form C (return form for companies). These forms and the accompanying instruction booklet are available from the ATO.
Calculating taxable income
Quick Reference
- Taxable income = assessable income - allowable deductions.
- Assessable income of a club, society or association generally does not include receipts from members.
- The effect of the goods and services tax (GST) is excluded when calculating the taxable income of an organisation registered (or required to be registered) for GST.
Non-profit companies and other taxable companies need to know about taxable income because it can affect the lodging of tax returns, rates of tax and the amount of income tax payable.
Taxable income is calculated as the difference between the organisation's assessable income and the allowable deductions.
Taxable income | = | Assessable income | - | Allowable deductions |
The taxable income of a club, society or association is calculated in the same way as for other companies. Two particular aspects affecting many clubs, societies and associations are:
- exclusion of the effect of mutual dealings with members, and
- exclusion of the effect of the goods and services tax (GST), if the club, society or association is registered (or required to be registered) for GST.
The exclusion of mutual dealings is discussed below under Assessable income and Allowable deductions.
The exclusion of GST is discussed in chapter 3 - Goods and services tax.
An example of calculating taxable income is given here.
Assessable income
Assessable income is, broadly speaking, the income derived by your organisation. It can also include some capital gains made on the disposal of assets. The instructions for Form C (return form for companies) and other guides available from the ATO will assist you.
Receipts treated as assessable income
Many amounts received by your organisation will be assessable income.
Example
- bank interest
- dividends and other income from investments
- proceeds from fundraising drives to the public, for example sale of lamingtons, cakes, or chocolates
- drinks sold at the bar to non-members visiting the club
- fees received for hiring out of the club's hall, facilities or equipment to the public
- amounts paid by non-members to attend dinners, parties, dances or social functions organised by the club
- amounts paid by non-members to attend a talk, presentation or workshop organised by the club
- non-member proceeds from a raffle
- selling souvenirs to non-members, and
- gaming income derived by a club under arrangements entered into with an external gaming or keno operator.
Receipts not treated as assessable income (mutual receipts)
Not all amounts of money or property received by your organisation will necessarily be assessable income. Receipts derived from mutual dealings with the members of your organisation are not assessable income. They are called mutual receipts.
Example
- member subscriptions
- drinks sold at the bar to club members
- amounts paid by members to attend dinners, parties, dances or social functions organised by the organisation, and
- amounts paid by members to attend a talk, workshop or presentation organised by the club.
Not all dealings involving members are necessarily mutual receipts.
Example
Dividing receipts into mutual receipts and assessable income
In most situations it is easy to identify and separate the receipts. However, if the identification and separation is not possible, you may use a practical and suitable method for apportioning the receipts. The method you choose is likely to depend on the type of receipts. We will accept your method of apportionment provided:
- there is a reason for apportioning the receipts
- the method chosen is reasonable and is not arbitrary, and
- it gives a correct reflection of the income earned.
Allowable deductions
Allowable deductions are, broadly speaking, operating expenses that are incurred in earning the assessable income. The instructions for Form C (return form for companies) and other guides available from the ATO will assist you.
If you have incurred expenses in earning both assessable income and non-assessable amounts, the deduction you will be able to claim will be limited to the extent that the expenditure is incurred in deriving the assessable income. Therefore, you may need to apportion your expenses.
Example
Depreciation may be allowable on capital items like cars, furniture and equipment.
Some expenses may be wholly incurred in deriving your organisation's assessable income. .
Example
- costs of running a function solely for non-members
- fees for earning bank interest or dividends, and
- costs of fundraising drives to the public.
However, there are some allowable deductions that do not have to be incurred in deriving the assessable income. They include tax deductible gifts and superannuation contributions for employees. Rates and land taxes are allowable deductions to the extent that premises are used to get mutual receipts or derive assessable income.
Expenses against mutual receipts
If your organisation has mutual receipts, not all the operating expenses will be allowable deductions. The part of the expenses that were incurred to get the mutual receipts will not be allowable deductions.
Example
- running member-only functions
- collecting subscriptions, and
- increasing membership.
In most situations it is easy to identify and separate the expenditure into allowable and non-allowable deductions. For example, the costs of buying badges for members (not an allowable deduction) could be separated easily from the costs of buying promotional buttons sold to the public as part of a fundraising drive (an allowable deduction).
However, there may be situations where the identification and separation is not possible or where the expenditure may relate to earning both assessable income and mutual receipts. In such situations, you may choose to use a practical and suitable method of apportioning the expenses. The method of apportionment is likely to depend on the type of expenses in question. We will accept your method provided:
- there is a reason for apportioning the expenditure
- the method chosen is suitable for that type of expenditure
- the method chosen is reasonable and is not arbitrary, and
- it gives a correct reflection of the expenditure incurred.
Licensed and registered clubs
If your organisation is a licensed club or registered club, the calculation of its taxable income may be more involved. The calculation is explained in Taxation Determination TD 93/194 and the pamphlet Guidelines for registered and licensed clubs.
Clubs that derive income under arrangements with third parties to conduct gaming or other activities on the club's premises should read Taxation Determination TD 1999/38. It discusses the assessability of such income.
These publications are available from the ATO.
Goods and services tax (GST)
The effect of GST on the calculation of taxable income differs depending on whether your organisation is registered (or is required to be registered) for GST.
GST and registration for GST are outlined in chapter 3.
Registered or required to be registered
If your organisation is registered for GST, or required to be registered, adjustments to assessable income and allowable deductions may be needed to calculate the taxable income.
Your assessable income will not include the GST payable on a taxable supply you make.
Example
Your allowable deductions will not include the input tax credits to which your organisation is entitled.
Example
Not registered and not required to be registered
If your organisation is not registered for GST and is not required to be registered, no adjustment for GST is needed in calculating taxable income.
Example
Example
Example of calculating taxable income
ABCD Society is a non-profit company with the following receipts and expenditure for year ended 30 June 2001. It is not registered for GST and not required to be registered.
Total receipts | $ | Total expenditure | $ |
Subscriptions | 3000 | Postage | 100 |
Term deposit interest | 800 | Photocopying | 100 |
Christmas dinner* | 5000 | Christmas dinner* | 4000 |
Lamington sale to public | 2500 | Cost of lamingtons | 1800 |
Term deposit charges | 50 | ||
Total |
11300
|
6050
|
The taxable income of ABCD Society is calculated as follows:
1. Determine the assessable income
Mutual receipts | Assessable income | Total | |
Subscriptions | $3000 | - | $3000 |
Term deposit interest | - | $800 | $800 |
Sale of lamingtons | - | $2500 | $2500 |
Christmas dinner | $3500 | $1500 | $5000 |
Total |
$6500
|
$4800
|
$11300
|
2. Determine the allowable deductions
Non-allowable | Allowable | Total | |
Postage** | $90 | $10 | $100 |
Photocopying** | $90 | $10 | $100 |
Christmas dinner | $2800 | $1200 | $4000 |
Cost of lamingtons | - | $1800 | $1800 |
Term deposit charges | - | $50 | $50 |
Total |
$2980
|
$3070
|
$6050
|
3. Taxable income
Assessable income less Allowable deductions
= $4800 - $3070
= $1730
Chapter 3 - Other taxes and obligations
| This document has been archived. It is current only to 19 June 2003. |
In this chapter we outline some other types of taxes and obligations that affect most organisations. Even organisations that are income tax exempt can have obligations for other taxes.
The taxes and obligations covered in this chapter are:
- Australian Business Number (ABN)
- goods and services tax (GST)
- fringe benefits tax (FBT)
- Pay As You Go (PAYG)
- deductible gift recipients (DGRs)
- Superannuation Guarantee Charge, and
- State government taxes and duties.
Contact details are provided should you wish to obtain further information.
Australian Business Number (ABN)
Quick Reference
- The Australian Business Number (ABN) is a new single identifier that businesses and non-profit organisations will use in their dealings with the ATO.
- You need an ABN to register for GST and other elements of The New Tax System.
The Australian Business Number (ABN) is a new single identifier that clubs, societies and associations will use to:
- register for GST and claim input tax credits
- register for Pay As You Go (PAYG)
- deal with investment bodies
- apply to the ATO for endorsement as a deductible gift recipient (DGR) if they operate a gift deductible fund or institution
- interact in future with other government departments and agencies, and
- interact with the ATO on other taxes, including:
- Diesel and Alternative Fuels Grants Scheme
- luxury car tax, and
- wine equalisation tax.
Your ABN registration details will become part of the Australian Business Register (ABR) which the ATO will maintain for all Commonwealth purposes. The publicly available information on the ABR will allow people to find out whether the entities they are dealing with have an ABN, are registered for GST or are endorsed as deductible gift recipients.
Who is entitled to register for an ABN?
To be entitled to an ABN you must be:
- a company registered under the Corporations Law
- a government department or agency
- an entity carrying on an enterprise in Australia
- a non-profit sub-entity for GST purposes, or
- be making supplies connected with Australia in carrying on an enterprise.
An entity for ABN purposes means an individual, a body corporate, a corporation sole, a body politic, a partnership, an unincorporated association or body of persons, a trust or a superannuation fund.
The definition of an enterprise for ABN purposes includes activities done in the form of a business, or in the form of an adventure or concern in the nature of trade. The use of the phrase 'in the form of' indicates that, as well as activities that constitute a business or an adventure in the nature of trade, an enterprise also includes an activity or activities done in the form of a business or in the form of an adventure or concern in the nature of trade. This includes an activity or series of activities that, if done for profit, would satisfy the ordinary concept of 'business' or 'adventure or concern in the nature of trade'.
The fact that activities of an entity are limited to making supplies to members of the entity does not prevent those activities being in the form of a business or an adventure or concern in the nature of trade.
An activity or activities of a private recreational pursuit or hobby is not an enterprise for ABN purposes.
The meaning of entity carrying on an enterprise for the purposes of entitlement to an ABN is discussed in detail in Miscellaneous Taxation Ruling MT 2000/1.
Certain non-profit organisations that are registered for GST have the option of treating their small independent branches (units) as if they were separate entities for GST purposes and not part of the main organisation. The characteristics are explained in the GST section. If a non-profit sub-entity registers for an ABN, it can be used for GST purposes only.
How do you register for an ABN?
You can register:
- electronically through the Business Entry Point (BEP) at www.business.gov.au
- on a paper form by mail - phone the ATO on 13 24 78 for an application, or
- through a tax agent.
You can register for an ABN and GST on the same form.
If entitled, your organisation should register for at least one ABN regardless of the number of enterprises you undertake.
Example
However, if your enterprises are carried on by a number of different entity types, each entity must register for an ABN in its own right.
Example
If your organisation is a subsidiary of a governing body, it is advisable that you discuss ABN registration with your governing body.
Need more information?
Further information about the ABN is available from the sources listed at the end of this guide.
Goods and services tax (GST)
Quick Reference
- GST is a broad-based tax of 10 per cent on the supply of most goods and services consumed in Australia.
- Non-profit bodies must register for GST if their annual turnover is $100 000 or more and they may choose to register if their annual turnover is lower.
- Other organisations must register for GST if their annual turnover is $50 000 or more and they may choose to register if their annual turnover is lower.
- Registered organisations can claim credits for the GST included in the price of goods and services they buy.
GST is a broad-based tax of 10 per cent on the supply of most goods, services and anything else consumed in Australia. It is also payable on most goods imported into Australia regardless of whether you are registered or not. GST applies from 1 July 2000.
Organisations that are suppliers of goods and services and are registered (or required to be registered) for GST will have to include 10 per cent GST on all of their supplies that are not GST-free or input taxed.
Which organisations are required to register for GST?
A non-profit body must register for GST if its annual turnover is $100 000 or more. If its turnover is less, it can register if it chooses to. Only organisations that are registered can claim credits (input tax credits) for the GST included in the price of goods and services they buy.
An organisation that is not a non-profit body must register for GST if its annual turnover is $50 000 or more. If its turnover is less, it can register if it chooses to.
You can register for GST and apply for an Australian Business Number (ABN) on the same form.
GST branches
A GST-registered organisation which operates through a branch structure may choose to register a branch or branches separately for GST. By registering a branch of your organisation as a GST branch, it effectively operates as a distinct entity for GST purposes.
To register as a GST branch, the entity must:
- maintain an independent system of accounting
- be separately identifiable because of its activities or location
- carry on (or intend to carry on) an enterprise through the branch, and
- not be a member of a GST group.
Non-profit sub-entities
Most non-profit entities that are income tax exempt with small independent branches (units) have the option of treating their units as if they were separate entities for GST purposes and not part of the main organisation.
The main organisation must itself be registered for GST to be able to use this option.
A unit will be considered to be independent if it:
- maintains an independent system of accounting
- can be separately identifiable because of its activities or location, and
- is referred to in the entity's records as a separate sub-entity for GST purposes.
For example, units could include a branch, fete, lamington drive or fundraising dinner.
This means that where the unit's turnover is less than $100 000, the unit can choose whether it registers for GST or not. Where the unit has a turnover of $100 000 or more, it will have to register separately for GST and will have the same rights and obligations as other GST-registered entities.
In the case of non-profit sub-entities, the liability for all GST obligations of the unit will be imposed on the people responsible for the management of the unit.
What if an organisation is registered for GST?
Clubs, societies and associations, their branches and non-profit sub-entities that are registered, or required to be registered, include 10 per cent GST on all their taxable supplies. No GST is payable on GST-free or input taxed supplies. They are also entitled to claim a credit for GST they have paid for acquisitions used in making taxable and GST-free supplies. This is called an input tax credit.
There is no entitlement for an input tax credit for anything acquired to make an input taxed supply. If the input tax credits are greater than the GST included, the registered entity will receive a refund or have the credit applied to other tax debts, if there are any.
What if an organisation is not registered for GST?
Organisations that are not registered and are not required to be registered do not include the 10 per cent GST on their supplies. However, these organisations are not able to claim input tax credits for the GST they have paid on their purchases.
In the same way, non-profit sub-entities that are not registered and not required to be registered will not be liable to include GST and will not be able to claim input tax credits.
Need more information?
Industry-specific booklets have been produced to provide details about how GST and The New Tax System operate. Topics covered include:
- Accommodation
- Arts and Culture
- Charitable, Religious and Non-profit Organisations
- Child and Aged Care
- The Health Industry
- Higher Education and Training
- Registered Clubs, Pubs and Hotels
- Schools
- Sport, Recreation and Gaming, and
- Travel and Tourism.
Further information, including these booklets, is available from the sources listed at the end of this guide.
Fringe benefits tax (FBT)
Quick Reference
- Employers who provide fringe benefits to employees are subject to FBT.
- Most non-government income tax exempt organisations will qualify for a rebate if they have to pay fringe benefits tax.
- Where the total taxable value of an employee's fringe benefits exceeds $1000 in an FBT year, an amount must be reported on the employee's group certificate or payment summary.
FBT is a tax payable by employers who provide fringe benefits to their employees or to associates of their employees. It operates to provide comparable tax treatment of fringe benefits and cash benefits.
FBT is a tax separate from income tax. Even if an organisation is exempt from income tax, it may still have to pay FBT. The amount of FBT is calculated on the taxable value of the fringe benefits provided.
What is a fringe benefit?
A fringe benefit is an employment-related benefit provided to an employee or an associate of the employee (typically a family member). Benefits may be rights, privileges or services. For example, a fringe benefit is provided when an employer:
- allows an employee to use a work car for private purposes
- gives an employee a cheap loan, or
- pays an employee's private health insurance costs.
Some employers will need to distinguish between employees and volunteers. A volunteer is a person who is not paid for work in either cash or fringe benefits. Volunteers may be reimbursed for out-of-pocket expenses. Where more than this reimbursement is provided, the recipient is generally regarded as an employee.
Exempt benefits
Some benefits are exempt from FBT. Examples of exempt benefits are certain minor benefits valued at less than $100, some taxi travel, certain work-related items (such as mobile phones primarily for use in employment and laptop computers) and work-related preventative health care.
Certain other benefits are exempt (subject to a capping limit in certain circumstances - see Recent changes) when provided by the following organisations:
- public benevolent institutions (PBIs)
- religious institutions for certain employees, and
- non-profit companies whose activities include caring for elderly or disadvantaged people and who provide benefits to live-in carers.
What organisations are eligible for a rebate?
Most non-government organisations that are income tax exempt will qualify for an FBT rebate. Eligible rebatable employers are entitled to have their FBT liability reduced by a rebate equal to 48 per cent of the gross FBT payable. The Recent changes section outlines changes that may impact on rebatable employers.
What are the fringe benefits tax reporting requirements?
From 1 April 1999, employers must keep records that show the taxable value of certain fringe benefits provided to individual employees.
If the total taxable value of reportable fringe benefits provided to an employee in an FBT year exceeds $1000, the employer must record the grossed-up taxable value of those benefits on the employee's group certificate or payment summary for the corresponding year.
The requirement to report ensures that fringe benefits are taken into account when determining an employee's:
- eligibility to superannuation rebates and deductions
- liability for superannuation contributions surcharge, termination payments surcharge and Medicare levy surcharges
- entitlement to certain income-tested government benefits
- child support obligations, and
- Higher Education Contribution Scheme repayments.
The employee does not have to pay income tax on the reportable fringe benefits.
Some benefits that are exempt from FBT may still need to be reported on group certificates. These are benefits that are exempt only because they are provided to:
- live in carers of elderly or disadvantaged people employed by religious institutions, non-profit companies and government bodies, and
- employees of PBIs, including government employees who work in a public hospital.
These benefits are known as quasi-fringe benefits. Where the total taxable value of actual fringe benefits plus quasi-fringe benefits provided to an employee exceeds $1000, the grossed-up amount is reported on the employee's group certificate or payment summary. The requirement to report exempt fringe benefits does not create an FBT liability for the organisation providing the exempt benefit.
Why is the amount shown on the group certificate or payment summary 'grossed-up'?
For the purposes of group certificate reporting, grossing-up reflects the gross salary that would have to be earned to purchase the benefit from after-tax dollars. This is calculated by using the FBT rate, which is equal to the highest individual marginal tax rate, including the Medicare levy.
The grossed-up taxable value is calculated by multiplying the total taxable value of the fringe benefits by 1/(1-the rate of FBT).
Example
| 1 | X $1100 = $2136 |
| 1-0.485 |
Recent changes
Legislative changes have been made by the Government in relation to FBT. The changes include:
- a measure designed to cap the concessional FBT treatment available to public benevolent institutions and certain other non-profit organisations. The cap to apply to charities and certain other non-profit organisations is $30 000 of grossed-up taxable value per employee, effective from 1 April 2001. The cap to apply to public and non-profit hospitals is $17 000 of grossed-up taxable value per employee, effective from 1 April 2000. Amounts of fringe benefits above these caps will be subject to normal FBT treatment. FBT exempt benefits and some fringe benefits are not subject to capping
- certain housing benefits provided to employees living and working in remote areas are exempt from FBT from 1 April 2000
- a concession to charities and certain hospitals operating in regional areas, by broadening the definition of remote areas for the purpose of the remote area housing benefit exemption. This change takes effect from 1 April 2000
- a new way to calculate FBT due to the introduction of a goods and services tax (GST)
- GST may be payable in relation to employee contributions for fringe benefits.
Need more information?
If you have any questions or need more information on FBT, please phone the ATO's FBT enquiry service on 13 33 28.
Our staff will be able to answer your specific queries and provide you with our current FBT publications.
Further information is also available from the sources listed at the end of this guide.
Pay As You Go (PAYG)
Quick Reference
- PAYG replaces most tax instalment and withholding systems from 1 July 2000. The start date for paying PAYG instalments will be different for organisations with an earlier or later accounting period.
- PAYG instalments enable an organisation to provide for its final taxation liability by paying tax in instalments throughout the year.
- PAYG withholding is the system through which an organisation withholds tax from payments it makes. It encompasses the original Pay As You Earn (PAYE) and tax file number (TFN) withholding obligations and has three new withholding categories - voluntary agreements with contractors, no-ABN withholding and labour hire arrangements.
- Non-profit and income tax exempt organisations are not exempt from PAYG withholding.
What is Pay As You Go (PAYG)?
PAYG starts from 1 July 2000 for most organisations. PAYG is a single, integrated reporting system which replaces more than ten existing instalment and reporting systems. These include provisional tax, company and superannuation fund instalments, pay as you earn (PAYE), the prescribed payments system (PPS), the reportable payments system (RPS), and dividend, interest and royalty withholding for non-residents.
PAYG also simplifies how you pay tax by aligning dates for payment.
PAYG consists of two arms: PAYG instalments and PAYG withholding.
PAYG instalments applies from the start of the 2000-01 income year, which for most taxpayers is 1 July 2000. The start date for PAYG instalments will be earlier or later for companies that do not balance on 30 June.
PAYG withholding is applicable to payments made on or after 1 July 2000.
What is PAYG instalments?
PAYG instalments replaces provisional tax and company and superannuation fund instalments.
Under PAYG instalments, taxpayers who are notified by the ATO of an instalment rate will be required to pay their own tax by instalments.
PAYG allows the timing of instalments by businesses and investors to reflect their current trading and income flows.
What is PAYG withholding?
Under PAYG withholding, if you make certain listed payments you will be required to withhold an amount from the payment and send this to the ATO.
Your organisation has PAYG withholding obligations as a payer if it makes one of the following types of payments:
- salary, wages, commission, bonuses or allowances to an employee
- remuneration to a director or member of committee of management
- salary, wages, commission, bonuses or allowances to an office holder (such as a member of the defence forces, a police officer or person holding office under the Constitution including members of parliament)
- return to work payments
- retirement payments (that is, unused leave), eligible termination payments, pensions and annuities
- social security and compensation payments
- payments for work or services under labour hire arrangements or prescribed by regulations
- payments for work or services where your organisation and an individual have a voluntary agreement to withhold
- payments for a supply (services or goods) to another business which does not quote an ABN, and
- certain dividend, interest and royalty payments.
The obligation to withhold amounts from payments of salary or wages to employees (former PAYE), and from other payments such as dividends, interest or royalties paid to non-residents, carries over into the new system. The PPS and RPS systems cease to operate after 30 June 2000.
How does PAYG work for my employees?
PAYG withholding will replace and modernise the PAYE system. Under PAYE, salary or wage earners paid their income tax and Medicare levy by instalments deducted from their pay. Under PAYG this has not changed. However, it is proposed that Student Financial Supplement Scheme debits will also be collected under the new PAYG arrangement.
As an employer, you withhold the correct amount from your employee's salary or wage and send it to the ATO. Tax tables will be provided to tell you how much to withhold. These are available from the ATO and can also be obtained directly from our web site.
At the end of the financial year, you give each employee a payment summary which shows how much they were paid during the year and how much was withheld. The payment summary is then included in their tax returns. This operates in a similar way to group certificates under the old PAYE system.
What are my obligations for other PAYG withholding payments?
The most common circumstances that could arise where an organisation may have PAYG withholding obligations other than for employees would be:
- payments for work or services under voluntary withholding agreements, and
- payments for a supply (services or goods) to another business which does not quote an ABN.
The rates of withholding depend upon the type of payment. For example, the 'no ABN quoted' withholding rate is the highest marginal tax rate plus the Medicare levy (currently 48.5%), while the rate to be used for a voluntary withholding agreement is in the tax tables.
You should contact the ATO to find out the rates that apply to other payments.
A payment summary is also issued to individuals and entities (who are not employees) where PAYG withholding is made for the other types of payments subject to PAYG withholding.
Are there exceptions to withholding when an ABN is not quoted?
Yes. An amount need not be withheld where:
- the whole of the payment is exempt income of the supplier
- the payer is an individual paying for a supply of a private or domestic nature
- the payment does not exceed $50
- the supply is made by a member of a local governing body under a State or Territory law, or
- the payee has made a written, signed statement that the supply is private or domestic in nature, or relates to a hobby.
Are any organisations exempt from PAYG withholding?
No. Every payer has to withhold from payments subject to PAYG withholding. Organisations that are exempt from income tax are not exempt from PAYG withholding obligations.
What to do if you have PAYG withholding obligations?
If you make payments that are subject to PAYG withholding, you will need to register. You should contact the ATO's Small Business Helpline on 13 28 66 or the business Tax Reform Infoline on 13 24 78.
Where a payment you make is subject to PAYG withholding, you will be required to withhold an amount from the payment and send the amount withheld to the ATO by the due date. If you are a small or medium withholder, the amount withheld will be reported on your Business Activity Statement along with any GST, PAYG instalments or FBT amounts. Any credits you are entitled to (such as input tax credits for GST) will be offset against any amount of PAYG withholding and other taxation liabilities you are required to report on your Business Activity Statement. You will be required to remit these amounts monthly or quarterly, depending on your withholder status.
If you are a large withholder, you are required to send withheld amounts more frequently.
At the end of the year, you will be required to submit to the ATO an annual report which reconciles all withholding payments you have made to the ATO during the financial year.
Is an organisation subject to PAYG withholding on payments it receives?
Yes. An organisation may have an amount withheld from a payment it is due to receive if it does not quote its ABN or tax file number (TFN) to the payer.
The following payments are subject to PAYG withholding:
- a supply made by an organisation where it has not quoted its ABN on an invoice, or
- dividends and interest where an organisation has not quoted its TFN or ABN to a financial institution.
What happens if an organisation does not quote its ABN on an invoice?
Where an ABN has not been quoted, a payer must withhold the highest marginal tax rate plus Medicare levy (currently 48.5 per cent) from a payment for a supply.
However, withholding is not required if one of the exceptions applies to the payment (see here).
For example, there is no withholding if the payment would be exempt income of an income tax exempt organisation.
What happens if an organisation does not quote its TFN on its investments?
Under the tax law, the investment body (such as a bank, building society, unit trust or public company) must withhold an amount from the interest or dividends payable on the investments if an organisation has not quoted its TFN.
The amount withheld can be claimed as a credit when the organisation lodges its tax return.
The exceptions to this rule are:
- where an organisation has quoted its ABN to the investment body and the investment is held in the course or furtherance of an enterprise of the organisation, or
- where an organisation does not have a TFN and is not required to lodge an income tax return and it advises the investment body of the reason for not being required to lodge a return for the income year. Lodging income tax returns is explained here.
Can an organisation obtain a refund of any PAYG withholding amount withheld in error from a payment it receives?
Yes. Depending on the circumstances, an organisation has the following options:
- the payer (the entity that withheld the PAYG amount) may refund to the organisation where the payer becomes aware of the error or the organisation applies to the payer for a refund, before the end of the 21 July following the financial year in which the amount was withheld
- if the above situation does not apply and the withheld amount has already been paid to the ATO, the organisation may apply direct to the ATO for a refund, and
- if the organisation lodges income tax returns, it may choose to claim the amount as a credit when it lodges a return at the end of the financial year.
Need more information?
Further information about current and new tax instalment and withholding systems is available from the sources listed on the back cover of this guide.
Deductible gift recipients (DGRs)
Quick Reference
- To receive income tax deductible gifts, an organisation must be either endorsed as a DGR or listed by name in the tax law as a DGR.
Some types of organisations are entitled to receive income tax deductible gifts. They are called deductible gift recipients (DGRs).
To be a DGR, an organisation must be:
- listed by name in the income tax law as a DGR (there are fewer than 200 of these), or
- endorsed as a DGR.
To be endorsed as a DGR, a club, society or association must:
- have an Australian Business Number (ABN)
- be covered by one of the categories of DGR set out in the tax law
- maintain a special fund to receive gifts
- be in Australia, and
- apply to the ATO for endorsement. These requirements are explained in GiftPack which is available from the ATO by phoning 13 24 78.
Need more information?
Further information about deductible gift recipients is available from the sources listed on the back cover of this guide.
Superannuation Guarantee Charge (SGC)
Quick Reference
- All clubs, societies and associations who are employers are subject to the Superannuation Guarantee legislation.
- A Superannuation Guarantee Charge must be paid if an insufficient level of superannuation support is provided for the organisation's employees.
Your organisation may be affected by the Superannuation Guarantee (SG) legislation if it has employees.
Under the SG legislation, an employer is required to provide a prescribed minimum level of superannuation support for most of its employees. Employers who do not provide enough superannuation support will have to pay a Superannuation Guarantee Charge (SGC).
The SGC is not a deductible expense.
What organisations are exempt from the SGC?
All organisations that are employers are subject to the SG legislation. Even organisations that are exempt from income tax have obligations under the SG legislation.
Does your organisation need to make superannuation contributions for its employees?
Your organisation will need to make superannuation contributions for its employees to avoid paying the SGC.
Most employees, whether full-time, part-time or casual, are covered by the SG legislation.
Exceptions include employees who are:
- paid less than $450 in any calendar month; superannuation does not have to be provided for that month
- aged 70 or over (65 for 1996-1997 and earlier income years)
- non-resident employees who are paid solely for work undertaken outside Australia
- under 18 years old and employed part-time (that is, for no more than 30 hours a week), or
- employed for no more than 30 hours a week to do work that is primarily of a private or domestic nature.
Need more information?
If you have any questions or need more information on Superannuation Guarantee, please contact the Superannuation Hotline on 13 10 20 for the cost of a local call. This number is linked to the Translation and Interpreting Service for non-English speakers.
For the cost of a local call you can now have information sheets faxed to you - have your fax machine ready and call 13 28 60.
Alternatively, our internet web site address is www.ato.gov.au/super.
State government taxes and duties
Quick Reference
- State and Territory taxes include stamp duty, pay-roll tax, land tax, financial institutions duty and debits tax.
- Each State has its own law for these taxes, administered by its revenue office. While the laws between States are comparable, there are some variations.
- Some State taxes will be abolished as a result of GST.
- Contact details for State and Territory revenue offices are provided at the end of this section - enquiries about State taxes should not be directed to the Australian Tax Office (ATO).
This section provides an overview of the following State taxes: stamp duty, payroll tax, land tax, financial institutions duty, and debits tax.
Each State has its own laws for these taxes, administered by its revenue office from which further information is available. Contact details are provided at the end of this section.
Enquiries about State and Territory taxes should not be directed to the ATO.
Stamp duty
Stamp duty is a tax on written documents ('instruments') and certain transactions including motor vehicle registrations and transfers, insurance policies, leases, mortgages, hire purchase agreements and transfers of property (such as businesses, real estate or shares).
The rate of stamp duty varies according to the type and value of the transaction involved. Depending on the nature of the transaction, certain concessions and exemptions may be available.
Stamp duty on publicly listed marketable securities will be abolished from 1 July 2001.
Payroll tax
Payroll tax is a tax on the wages paid by employers. Employers are liable for payroll tax when their total Australian wages exceed a certain level called the exemption threshold. Exemption thresholds vary between States.
Payroll tax should not be confused with PAYG withholding tax, collected by the ATO. Payroll tax is payable to the State by an employer, based on the total wages paid to all employees. PAYG is the tax deducted from an individual's income and forwarded to the ATO. PAYG is explained further.
Certain organisations may be exempt from payroll tax provided specific qualifying conditions are satisfied. These organisations may include religious institutions, public benevolent institutions, public or non-profit hospitals, non-profit non-government schools or colleges providing education at secondary level or below, municipal councils and charitable organisations.
As requirements vary between States, employers should seek clarification from their local State or Territory revenue office.
Land tax
Land tax is imposed in all States and the ACT, but not in the Northern Territory. It is a tax levied on landowners except in the ACT where it is levied on lessees under a Crown lease.
Landowners are generally liable for land tax when the unimproved value of taxable land exceeds certain thresholds. In some States there are deductions and rebates available, depending on the use of the land. Principal places of residence are usually exempt from land tax although this is subject to certain qualifying criteria which vary between jurisdictions.
Land owned and used by certain organisations may be exempt from land tax. These organisations generally include non-profit societies, clubs and associations, religious institutions, public benevolent institutions and charitable institutions.
As requirements vary between States, organisations should seek clarification from their local State or Territory revenue office.
Financial institutions duty (FID)
Currently FID applies in all States and Territories, except Queensland, although it will be abolished from 1 July 2001. FID is a tax on the receipt of money by a financial institution. The receipt may involve the physical receipt of money (for example, a deposit by a customer into a bank account) or the crediting of an account (for example, the credit of interest earned or the transfer of money from another bank account).
While liability for the payment of FID rests with financial institutions, legislation allows for the charge to be recouped from customers.
There are limited exemptions from FID and eligibility for exemption varies across jurisdictions. Bodies which may be eligible to conduct an account exempt from FID include registered financial institutions, charitable or public benevolent institutions, public hospitals, public schools and certain government departments.
As requirements vary between States, organisations should seek clarification from their local State or Territory revenue office.
Debits tax
Debits tax is charged on debit transactions (for example withdrawals, account keeping fees etc) to accounts with cheque drawing or payment order facilities. Debits tax is not charged on reversals of credit transactions or deductions for debits tax. Debits tax is scheduled to be abolished by 1 July 2005, subject to review by the Commonwealth, States and Territories.
Debits tax was previously known as Bank Account Debits Tax or BAD Tax.
Financial institutions and account holders are jointly liable for debits tax, however it is usually paid by the financial institution and recouped from the account holder.
There are limited exemptions from debits tax and eligibility differs between jurisdictions. Debits made to accounts held by bodies such as public benevolent institutions, religious institutions, public hospitals and government schools are generally not taxable.
As requirements vary between States, organisations should seek clarification from their local State or Territory revenue office.
Contact details for further information are listed below.
NSW Office of State Revenue | Revenue SA |
Queensland Office of State Revenue | Territory Revenue Management |
ACT Revenue Office | State Revenue Office Tasmania |
State Revenue Office of Victoria | State Revenue Department of Western Australia |
Appendices
Appendixes
| This document has been archived. It is current only to 19 June 2003. |
Appendix 1 - Type of exempt entity
The types of club, society and association that can be exempt from income tax are listed in the table in chapter 1.
This appendix provides the further information that the table says you may need to determine whether your organisation is exempt.
It includes descriptions and examples of the exempt categories, explains the further requirements that you might need to meet, and provides checklists.
The information has been grouped for types of exempt categories with similar characteristics:
Group | Group |
Cultural organisations | Health organisations |
Community service organisations | Religious organisations |
Educational organisations | Resource development organisations |
Employment organisations | Scientific organisations |
Friendly societies | Sporting organisations |
Cultural organisations
You will be exempt from income tax if:
- you are a non-profit society, association or club ('non-profit' is explained)
- you are established for:
- the encouragement of art, literature or music, or
- musical purposes
- you are not a charity, and
- you meet at least one of three additional tests.
Types of organisation
The main purpose of the organisation must be the encouragement of art, literature or music, or musical purposes. To work out your main purpose, you should look at your constituent documents, activities, use of funds, and your history. Any other purpose of the organisation must be incidental, ancillary or secondary to the musical purposes or encouragement of art, literature or music.
The words art, literature and music are not defined in the legislation and take their natural meaning. For this exemption, art includes drama and ballet as well as painting, architecture and sculpture. It does not include exhibition of stamps by philatelic clubs and associations. Literature includes a wide range of written or printed works. It includes works in different languages, on particular subjects or by particular authors. Music includes the performance of vocal or instrumental works and covers various styles (for example, classical, jazz, popular, liturgical).
The means of encouraging can include training, performing, displaying, providing information, studying, judging and critiquing. Professional associations set up to advance the common interests of their members (for example, artists or performers) do not have the required purpose.
Example
Example
If your main purpose is providing social and recreational facilities and activities, you will not be exempt. This is the case even if you also give money to encourage the arts, literature or music.
Example
Charity
Organisations that are also charities must meet the special requirements for charities to be income tax exempt. They are explained in CharityPack. This means that if you are one of these types of organisation and also a charity, you should use CharityPack and not this guide. You can get a CharityPack from the ATO.
To work out if you are a charity, go to Appendix 2 - Are you a charity? Cultural organisations that operate for the public benefit to advance the arts or educate the public in the arts are likely to be charities. Organisations will not be charities if they are primarily recreational, for entertainment, or for the benefit of their members.
Example
Example
Three tests
There are further conditions these organisations must meet to be exempt from income tax. They must meet at least one of the conditions explained here. Go here to work out if your organisation meets one of the three tests.
Checklist
You will be exempt from income tax if you meet all of the following:
- you are a non-profit society, association or club
- you are established for:
- the encouragement of art, literature or music, or
- musical purposes
- you are not a charity, and
- you meet one of the three tests.
Being exempt from income tax gives you important income tax entitlements:
- you do not need to lodge an income tax return, unless specifically requested, and
- you do not need to notify the ATO of your exemption.
To ensure the correctness of your exemption status, you should review whether you are still exempt at least once per year and at any time when there are major changes in your structure or activities (see the worksheet at appendix 4). Despite being income tax exempt, you may still be liable for other taxes (see chapter 3).
If your organisation does not meet all the requirements for exemption, you should check the other exemption categories in the table. Organisations that are not exempt are taxable - see chapter 2.
Community service organisations
You will be exempt from income tax if:
- you are a non-profit society, association or club ('non-profit' is explained)
- you are established for community service purposes (except political or lobbying purposes)
- you are not a charity, and
- you meet at least one of three additional tests.
Type of organisation
The main purpose of the organisation must be community service purposes. To work out your main purpose, you should look at your constituent documents, activities, use of funds, and your history. Any other purpose of the organisation must be incidental, ancillary or secondary to the community service purposes.
Community service purposes are altruistic. That is, community service organisations are established and operated with regard to the well-being and benefit of others.
Community service organisations promote, provide or carry out activities, facilities or projects for the benefit or welfare of the community or any members who have a particular need by reason of youth, age, infirmity or disablement, poverty or social or economic circumstances.
Example - Community Service
- non-profit child care centres, including those providing long-day care facilities, after school care, and day child care in activity caravans
- associations of Justices of the Peace
- associations of play groups
- traditional service clubs
- community service clubs, and
- pensioner or senior citizens associations.
Organisations that seek to advance the common interests of their members are not altruistic and so cannot be community service organisations. If an organisation's main purpose is lobbying or political, its income will not be exempt.
Example - Not Community Service
- clubs which promote public speaking or debating
- clubs which provide a social forum for retired or semi-retired business people, senior public servants and the like
- clubs which provide a social forum for expatriates of a particular country
- pensioner associations which conduct significant political or lobbying activities
- military service unit organisations, and
- social clubs for newcomers to a particular residential area.
Further information on community service organisations is provided in Taxation Determination TD 93/190, available from the ATO.
Charity
If a community service organisation is also a charity, it must meet the special requirements for charities to be income tax exempt. They are explained in CharityPack. This means that if you are a community service organisation and also a charity, you should use CharityPack and not this booklet. You can get a CharityPack from the ATO.
To work out if you are a charity, go to Appendix 2- Are you a charity? Many community service organisations will be charities. Organisations that have the purpose of advancing the common interests of their members are not charities.
Three tests
To be exempt from income tax, a community service organisation must also meet one of the three tests explained here. Go here to work out if your organisation meets one of the three tests.
Checklist
You will be exempt from income tax if you meet all of the following:
- you are a non-profit society, association or club
- you are established for community service purposes (except political or lobbying purposes)
- you are not a charity, and
- you meet one of the three tests.
Being exempt from income tax gives you important income tax entitlements:
- you do not need to lodge an income tax return, unless specifically requested, and
- you do not need to notify the ATO of your exemption.
To ensure the correctness of your exemption status, you should review whether you are still exempt at least once per year and at any time when there are major changes in your structure or activities (see the worksheet at appendix 4). Despite being income tax exempt, you may still be liable for other taxes (see chapter 3).
If your organisation does not meet all the requirements for exemption, you should check the other exemption categories in the table. Organisations that are not exempt are taxable - see chapter 2.
Educational organisations
You will be exempt from income tax if:
- you are a public educational institution
- you are not a charity, and
- you meet at least one of the three tests.
Public educational institution
A public educational institution is an institution that is available or open to the public or a section of the public and whose dominant purpose is providing education. Any other purpose of the organisation must be incidental or ancillary to providing public education. Education in this context does not extend to merely providing information or lobbying.
Example - Public Educational Institutions
- universities or colleges managed by public bodies
- grammar schools
- primary and secondary schools run by churches or religious bodies, and
- non-profit business colleges.
Example - Not Public Educational Institutions
- colleges run for the profit of the private owners
- associations operated for their members' professional benefit, and
- promotional and lobbying bodies.
Many other organisations connected with education are not public educational institutions. Examples are a parents and friends committee and a scholarship provider. These organisations should check CharityPack to see if they can be exempt as charities.
Charity
A public educational institution that is a charity must meet the special requirements for charities to be income tax exempt. They are explained in CharityPack. If you are both a public educational institution and a charity, you should use CharityPack and not this guide. You can get a CharityPack from the ATO.
To work out if you are a charity, go to Appendix 2 - Are you a charity? Most public educational institutions are likely to be charities.
Three tests
If you work out you are not a charity, you must meet at least one of three tests to be exempt from income tax. Go here to work out if your organisation meets one of the three tests.
Checklist
You will be exempt from income tax if you meet all of the following:
- you are a public educational institution
- you are not a charity, and
- you meet at least one of the three tests.
Being exempt from income tax gives you important income tax entitlements:
- you do not need to lodge an income tax return, unless specifically requested, and
- you do not need to notify the ATO of your exemption.
To ensure the correctness of your exemption status, you should review whether you are still exempt at least once per year and at any time when there are major changes in your structure or activities (see the worksheet at appendix 4). Despite being income tax exempt, you may still be liable for other taxes (see chapter 3).
If your organisation does not meet all the requirements for exemption, you should check the other exemption categories in the table. Organisations that are not exempt are taxable - see chapter 2.
Employment organisations
Three types of employment organisations can be exempt:
- trade unions
- employee associations that are registered under a Commonwealth, State or Territory law relating to the settlement of industrial disputes, and
- employer associations that are registered under a Commonwealth, State or Territory law relating to the settlement of industrial disputes.
(An employer association that is not registered cannot qualify as a trade union.)
To be exempt, these three types of organisations, must:
- be located in Australia, and
- pursue their objectives and incur their expenditure principally in Australia.
Limit on exemption
The exemption does not apply to the investment income from superannuation, life assurance and accident and disability insurance business of some registered trade unions and some employee associations.
Friendly societies
An organisation is exempt on some of its income if:
- it is a friendly society
- it is not a friendly society dispensary
- it is non-profit ('non-profit' is explained here), and
- it meets at least one of the three tests.
A friendly society is a body that:
- is registered or incorporated as a friendly society under a law of a State or Territory
- is a friendly society for the purposes of the Life Insurance Act 1995
- is permitted, by a law of a State or Territory, to assume or use the expression 'friendly society', and
- immediately before the date that is the transfer date for the purposes of the Financial Sector Reform (Amendments and Transitional Provisions) Act (No 1) 1999, was registered or incorporated as a friendly society under a law of a State or Territory.
A friendly society dispensary is an approved pharmacist (within the meaning of Part VII of the National Health Act 1953) that is a friendly society or a body carrying on business for the benefit of members of a friendly society.
Friendly societies offering education funds should consult Taxation Ruling TR 93/39. It explains the circumstances when education funds are carried on for profit or gain of the individual members, such as to deny exemption status.
If a friendly society's sole purpose is the relieving of poverty, it should use CharityPack and not this guide. Such friendly societies will need to be endorsed to be exempt from income tax.
Three tests
To be exempt, the friendly society must meet at least one of the three tests explained here. Go here to work out if your organisation meets one of the three tests.
Checklist
You will be exempt from income tax on some of your income if you meet all of the following:
- you are a friendly society
- you are not a friendly society dispensary
- you are non-profit ('non-profit' is explained here), and
- you meet at least one of the three tests.
Limit on exemption
The exemption does not apply to the friendly society's investment income from superannuation, life assurance and accident and disability insurance business.
Health organisations
A hospital can be exempt from income tax if:
- it is a public hospital, or
- it is carried on by a non-profit society or association ('non-profit' is explained here)
A hospital will be exempt as a hospital if:
- it is not a charity, and
- it meets at least one of three tests.
A hospital is an institution in which patients are received for continuous medical care and treatment for sickness, disease or injury. Providing accommodation is integral to a hospital's care and treatment. Clinics that mainly treat ambulatory patients who return to their homes after each visit are not hospitals. However, day surgeries that provide beds for patients to recover after surgery may be hospitals. Homes to provide nursing care for feeding, cleanliness and the like are not hospitals. However, nursing homes for persons suffering from illness are accepted as hospitals. Hospices for the terminally ill will generally be hospitals. Minor out-patient and nursing care will not prevent an institution being a hospital.
Examples of non-profit hospitals include those run by churches and religious orders.
Charity
If a hospital is also a charity it must meet the special requirements for charities to be income tax exempt. They are explained in CharityPack. This means that, if your organisation is both a hospital and a charity, you should use CharityPack and not this guide. You can get a CharityPack from the ATO.
To work out if you are a charity, go to Appendix 2 - Are you a charity? Many hospitals, including many run by religious organisations, are charities. If your hospital is a public benevolent institution, it is a charity. A hospital is not a charity if it is run only to treat the members of its controlling association or society.
Example
Three tests
The special condition a hospital must meet to be exempt from income tax is that it meets one of the three tests explained.
Go here to work out if your hospital meets one of the three tests.
Checklist
You will be exempt from income tax if you meet all of the following:
- you are
- a public hospital, or
- a hospital that it is carried on by a non-profit society or association ('non-profit' is explained here)
- you are not a charity, and
- you meet at least one of three tests.
Being exempt from income tax gives you important income tax entitlements:
- you do not need to lodge an income tax return, unless specifically requested, and
- you do not need to notify the ATO of your exemption.
To ensure the correctness of your exemption status, you should review whether you are still exempt at least once per year and at any time when there are major changes in your structure or activities (see the worksheet at appendix 4). Despite being income tax exempt, you may still be liable for other taxes (see chapter 3).
If your organisation does not meet all the requirements for exemption, you should check the other exemption categories in the table. Organisations that are not exempt are taxable - see chapter 2.
Benefits organisations
Note that non-profit medical, health and hospital benefits organisations registered for the purposes of the National Health Act 1953 are also exempt from income tax.
Religious organisations
You will be exempt from income tax if:
- you are a religious institution
- you are not a charity, and
- you meet at least one of four other conditions.
Religious institution
You will be a religious institution if you are an establishment, organisation or association that is instituted to advance or promote religious purposes.
An institution may have the legal structure of an unincorporated association or a corporation. However, incorporation is not enough, on its own, for an organisation to be an institution. Its activities, size, permanence and recognition will be relevant.
An organisation that is established, controlled and operated by family members and friends would not normally be an institution.
Example
An institution will be a religious institution if:
- its objects and activities reflect its character as a body instituted for the promotion of some religious object, and
- the beliefs and practices of the members constitute a religion.
The expression religion is not confined to major religions such as Christianity, Islam, Judaism, but also extends to Buddhism, Taoism, Jehovah Witnesses, the Free Deist Communion of Australia and Scientology. The categories of religion are not closed. Nonetheless, to be a religion there must be:
- belief in a supernatural Being, Thing or Principle, and
- acceptance of canons of conduct which give effect to that belief, but which do not offend against the ordinary laws.
Charity
If a religious institution is also a charity, it must meet the special requirements for charities to be income tax exempt. They are explained in CharityPack. This means that, if you are both a religious institution and a charity, you should use CharityPack and not this guide. You can get a CharityPack from the ATO.
To work out if you are a charity, go to Appendix 2 - Are you a charity? The vast majority of religious institutions are charities. An example of a religious institution that is not a charity could be a closed group that is conducted only for the benefit of its members and not for the public.
Example
Example
If you have worked out that you are not a charity, continue reading.
Four other conditions
There are further conditions a religious institution must meet to be exempt from income tax. The religious institution:
- must meet at least one of the three tests explained here, or
- must be listed by name in the income tax regulations for these purposes, and have a physical presence in Australia but pursue its objectives and incur its expenditure principally outside Australia.
Checklist
You will be exempt from income tax if you meet all of the following:
- you are a religious institution
- you are not a charity, and
- you meet at least one of four other conditions.
Being exempt from income tax gives you important income tax entitlements:
- you do not need to lodge an income tax return, unless specifically requested, and
- you do not need to notify the ATO of your exemption.
To ensure the correctness of your exemption status, you should review whether you are still exempt at least once per year and at any time when there are major changes in your structure or activities (see the worksheet at appendix 4). Despite being income tax exempt, you may still be liable for other taxes (see chapter 3).
If your organisation does not meet all the requirements for exemption, you should check the other exemption categories in the table. Organisations that are not exempt are taxable - see chapter 2.
Resource development organisations
A range of resource development organisations can be exempt. The organisations must not be charities, but must be non-profit ('non-profit' is explained here). They must also be established for the purpose of promoting the development of:
- aviation
- tourism
- agricultural resources of Australia
- aquacultural resources of Australia (for 1999-2000 and later years)
- fishing resources of Australia (for 1999-2000 and later years)
- horticultural resources of Australia
- industrial resources of Australia
- manufacturing resources of Australia
- pastoral resources of Australia, or
- viticultural resources of Australia.
Types of organisation
Aviation, tourism and the various resources have their ordinary meaning. Industrial resources include building, mining, quarrying, shipping and transport, but do not include business and commercial resources such as insurance and services such as surveying.
Example
Promoting development can be by various means, including research, providing facilities, training, improving marketing methods, facilitating cooperation, and the like.
Example
The main purpose of the society, association or club must be promoting the development of the relevant resources. To work out your main purpose, you should look at your constituent documents, activities, use of funds, and your history. Any other purpose of the organisation must be incidental, ancillary or secondary to promoting development of the relevant resources.
If the organisation's main purpose is merely to provide services to its members, it will not be exempt. This is the case even if the services result in better use of resources by those members.
Example
Charity
If an organisation is also a charity, it must meet the special requirements for charities to be income tax exempt. They are explained in CharityPack. This means that, if you are both one of these organisations and a charity, you should use CharityPack and not this guide. You can get a CharityPack from the ATO.
To work out if you are a charity, go to Appendix 2 - Are you a charity? Many resource development organisations are charities. To be a charity, your dominant purpose must be for the benefit of the community. Any other purposes must be incidental to that purpose.
Example
Checklist
You will be exempt from income tax if you meet all of the following:
- you are a non-profit society or association established for the purpose of promoting the development of:
- aviation
- tourism
- agricultural resources of Australia
- aquacultural resources of Australia (for 1999-2000 and later years)
- fishing resources of Australia (for 1999-2000 and later years)
- horticultural resources of Australia
- industrial resources of Australia
- manufacturing resources of Australia
- pastoral resources of Australia, or
- viticultural resources of Australia, and
- you are not a charity.
Being exempt from income tax gives you important income tax entitlements:
- you do not need to lodge an income tax return, unless specifically requested, and
- you do not need to notify the ATO of your exemption.
To ensure the correctness of your exemption status, you should review whether you are still exempt at least once per year and at any time when there are major changes in your structure or activities (see the worksheet at appendix 4). Despite being income tax exempt, you may still be liable for other taxes (see chapter 3).
If your organisation does not meet all the requirements for exemption, you should check the other exemption categories in the table. Organisations that are not exempt are taxable - see chapter 2.
Scientific organisations
Three types of association, society or club can be exempt from income tax:
- scientific institutions
- non-profit societies, associations or clubs established for the encouragement of science ('non-profit' explained), and
- funds established to enable scientific research to be conducted by or with a public university or public hospital.
Types of organisation
For these purposes, science has its ordinary meaning. It is not limited to the physical sciences and includes the human and applied sciences.
Scientific institutions. These are institutions set up and operated for the dominant purpose of advancing science. Common ways of advancing science include research, exploration and teaching. Disseminating information will often be involved.
Scientific institutions do not include:
- organisations run for the profit of their individual owners or members, and
- professional associations primarily run for the professional or business interests of their members.
Example
Example
Scientific associations. The main purpose of the society or association must be the encouragement of science. Recreational or hobby clubs do not qualify. The main purpose must not be promoting the professional or business interests of members.
Example
Example
Scientific research funds. The association, society or club must be no more than a fund, and it must have sufficient links with public universities or public hospitals. The fund itself does not conduct the scientific research. It is conducted by the university or hospital or by other bodies in conjunction with them.
The fund may enable the research by various means including providing money or facilities.
Example
Charity
Scientific institutions and scientific associations that are charities must also meet the special requirements for charities to be income tax exempt. They are explained in CharityPack.
If this applies to you, you should use CharityPack and not this guide. You can get a CharityPack from the ATO.
To work out if you are a charity, go to Appendix 2 - Are you a charity? While most scientific institutions are likely to be charities, a scientific association will not be a charity if it is carried on for the benefit of its members rather than for the community.
Other conditions
Scientific institutions and scientific associations
These organisations must meet at least one of the three tests explained on here. Go here to work out if you meet one of the three tests.
Scientific research funds
If you are one of these organisations, the fund must be applied for the purposes for which it was established. If it is being applied for other purposes, it will not be exempt.
The scientific research fund must also meet at least one of two conditions.
One condition is that the fund is a deductible gift recipient (DGR). DGRs are entitled to receive income tax deductible gifts.
To meet the other condition, the fund must:
- be established to enable the scientific research to be conducted principally in Australia by or in conjunction with the public university or public hospital
- be located in Australia, and
- incur its expenditure principally in Australia.
In working out whether expenditure is principally incurred in Australia, the fund can disregard any distributions it makes of amounts it received as gifts or government grants.
Checklist
- you are:
- a scientific institution
- a non-profit society, association or club established for the encouragement of science, or
- a fund established to enable scientific research to be conducted by or with a public university or public hospital
- you are not a charity, and
- you meet the other conditions for exemption.
Being exempt from income tax gives you important income tax entitlements:
- you do not need to lodge an income tax return, unless specifically requested, and
- you do not need to notify the ATO of your exemption.
To ensure the correctness of your exemption status, you should review whether you are still exempt at least once per year and at any time when there are major changes in your structure or activities (see the worksheet at appendix 4). Despite being income tax exempt, you may still be liable for other taxes (see chapter 3).
If your organisation does not meet all the requirements for exemption, you should check the other exemption categories in the table. Organisations that are not exempt are taxable - see chapter 2.
Sporting organisations
You will be exempt from income tax if:
- you are a non-profit society, association or club ('non-profit' explained)
- you are established for the encouragement of:
- a game or sport, or
- animal racing
- you are not a charity, and
- you meet at least one of three additional tests.
Type of organisation
The main purpose of the society, association or club must be the encouragement of a game or sport, or animal racing. To work out your main purpose, you should look at your constituent documents, activities, use of funds, and your history. Any other purpose of the organisation must be incidental, ancillary or secondary to encouragement of the game, sport or animal racing. More information on working out your main purpose is given in Taxation Ruling TR 97/22.
If your main purpose is providing social and recreational facilities and activities, you will not be exempt. This is the case even if you also give money to encourage games, sports or animal racing.
Example
Game or sport
The words game and sport are not defined and take their ordinary meaning. Games and sports extend to athletic games or sports (such as football and swimming), and non-athletic games (such as chess and bridge). They do not extend to stamp-collecting, keeping and showing pets, making model railways, maintaining vintage cars, and various social and recreational pursuits. More information is given in Taxation Ruling TR 97/22.
Encouragement of the games or sports extends to less direct means, such as research or testing, developing referees, and providing sporting facilities.
Example
Animal racing
The exemption covers horse racing and trotting, and greyhound racing, but also extends to the racing of other animals.
Charity
If one of these organisations is also a charity, it must meet the special requirements for charities to be income tax exempt. They are explained in CharityPack. This means that, if you are both one of these organisations and a charity, you should use CharityPack and not this guide. You can get a CharityPack from the ATO.
The vast majority of sporting clubs are not charities. You will only be a charity if your encouragement of the game, sport or animal racing is wholly integrated in carrying out purposes that are charitable. Such charitable purposes include advancing education and relieving the condition of the sick or disabled. More information on charities is in Appendix 2 - Are you a charity?
Example
- a club wholly integrated in a school or university and furthering its educational aims
- a club that primarily uses a game to help rehabilitate the sick, and
- a club that primarily uses a sport to relieve disability.
Three tests
There are further conditions the organisation must meet to be exempt from income tax.
It must meet at least one of the three tests explained.
Go here to work out if you meet one of the three tests.
Checklist
- you are a non-profit society, association or club
- you are established for the encouragement of:
- a game or sport, or
- animal racing
- you are not a charity, and
- you meet one of the three tests.
Being exempt from income tax gives you important income tax entitlements:
- you do not need to lodge an income tax return, unless specifically requested, and
- you do not need to notify the ATO of your exemption.
To ensure the correctness of your exemption status, you should review whether you are still exempt at least once per year and at any time when there are major changes in your structure or activities (see the worksheet at appendix 4). Despite being income tax exempt, you may still be liable for other taxes (see chapter 3).
If your organisation does not meet all the requirements for exemption, you should check the other exemption categories in the table. Organisations that are not exempt are taxable - see chapter 2.
Appendix 2 - Are you a charity?
In working out whether the income of your club, society or association is exempt from income tax, you will need to know whether it is a charity.
There are special rules for charities to be exempt from income tax. Those special rules are explained in CharityPack; they are not explained in this guide. A club, society or association that is a charity must be endorsed as an income tax exempt charity (ITEC) to be exempt from income tax. If you qualify for exemption as an ITEC, you cannot claim exemption on the basis that you fall into one of the exemption categories set out in the table of exempt entities in chapter 1 of ClubPack. Charities need to apply to the ATO for endorsement.
This appendix will help you work out if your organisation is a charity. It largely reproduces appendix 1 from CharityPack but has been slightly modified to make it more specific for clubs, societies and associations.
If you work out that your organisation is a charity, you should get a CharityPack from the ATO by contacting the sources listed in this guide.
Are you a charity?
This appendix helps you work out if you are a charity. It provides:
- the characteristics of charities - What is a charity?
- purposes that are not charitable - Organisations that are not charities
- key points to work through - Checklist - am I a charity? and
- lists of descriptions and examples of charities and non-charities - Types of organisation listing.
The checklist helps you relate these elements to your circumstances by drawing together the characteristics, purposes and examples. Before concluding that you are or are not a charity, you should use the checklist.
What is a charity?
A charity is an entity established for altruistic purposes that the law regards as charitable.
The ATO does not set the criteria to decide whether or not an organisation is a charity. The criteria are established in the law by case judgments.
Charitable purposes are the relief of poverty, the relief of the needs of the aged, the relief of sickness or distress, the advancement of religion, the advancement of education and other purposes beneficial to the community.
Example: charities
The characteristics of a charity are:
- it is an entity which is also a trust fund or an institution
- it exists for the public benefit or the relief of poverty
- its purposes are charitable within the legal sense of that term
- it is non-profit, and
- its sole or dominant purpose is charitable.
Entity
An entity for these purposes includes a corporation and an unincorporated club, society or association. A part of an entity - like a branch, division or account - is not treated as a charity.
The entity must be a trust fund or an institution.
Trust funds are not discussed in ClubPack. It is envisaged that if a club, society or association covered by ClubPack is a charity, it will not be a trust fund.
Whether a club, society or association has the character of an institution will depend on a range of features including its activities, size, permanence, purposes and recognition. Incorporation is not enough, on its own, to show an organisation is an institution.
A charitable institution would not usually include an organisation that is established, controlled and operated by family members and friends.
Example
Charities are for the public
Charities are altruistic and exist for the benefit of the community or the relief of poverty. If an entity places limits on those who can benefit from its activities, it may still be a charity if those limits are only to enable it to better carry out its charitable purposes.
Charities sometimes limit their activities to a particular segment of the community. Such groups include residents of a particular geographic area, the adherents of a particular religion, or sufferers of a particular disability or condition. If the nature of the benefits provided by an organisation are compatible with such a limit, the purpose can be charitable.
Example
Charities often limit access so as to better provide their services to the community. Examples can include the enrolment procedures of schools, the membership procedures of a police and citizens youth club, referral policies of medical clinics, and the borrowing rules of libraries. The continuation and efficient administration of a charity can make such limits necessary.
Example: Charity
If an entity limits benefits on the basis of family ties, employment with a particular employer or membership of a particular association, it will not be a charity unless its purpose is solely to relieve poverty.
Example: Non-charity
Charitable purposes
Not all entities which are of benefit to the community are charitable. The entity must be set up for purposes that the law regards as charitable. These purposes are not limited to a finite list. As new community needs arise, particular purposes may be recognised by the courts as charitable. We have provided examples of charities in the listing under the following headings:
- aged persons
- animals
- culture
- defence and public order
- disaster relief
- education
- environment
- health
- indigenous persons
- industry, commerce, agriculture
- locality or neighbourhood
- moral improvement
- people with disabilities
- poverty
- public works and utilities
- religion
- research
- science
- unemployment, and
- young persons.
The listing introduces the characteristics of charities under each heading and gives examples of charities and non-charities.
Charities are non-profit
An entity is not charitable if it is carried on for the purposes of profit or gain to particular persons including its owners or members. This is the case irrespective of the number of owners or members, or whether charitable consequences flow from the entity's activities.
Example : non-charity
Entities can satisfy the non-profit requirement if their constituent or governing documents prevent them from distributing profits or assets for the benefit of particular persons both while they are operating and on winding up. The entity's actions must be consistent with this requirement. This is so for both direct and indirect gains.
Example
Non-profit clause
Dissolution clause
A charity can be non-profit and still make a profit. However, any profits it makes must be used for charitable purposes. The profits must not be distributed to owners, members or other private persons.
Example : charity
Sole or dominant purpose
The sole or dominant purpose of the entity must be charitable.
If the entity has purposes which, when viewed in isolation would not be charitable, they must be incidental or ancillary to the charitable purpose.
Example: charity
If an entity has purposes that are not part of or incidental to its charitable purpose, it is not a charity. This is the case even if those purposes are secondary.
Example: non-charity
The characteristics of each entity will determine whether it is a charity. An entity's governing or constituent documents (constitution, memorandum and articles of association, rules, charter etc) must show that it is a charity. Its activities must also show it is a charity.
Example : charity
Organisations that are not charities
Many community organisations are not charities. An entity is not a charity if:
- it is primarily for sporting, recreational or social purposes, or
- it is primarily for political, lobbying or promotional purposes.
Government departments and instrumentalities carrying out the ordinary functions of government are unlikely to be charities.
Charities are not sporting, recreational or social
Sporting and recreational entities established for sporting or recreational purposes are not charities.
Example : non-charities
Entities which are primarily for social or entertainment purposes are not charitable.
Example : non-charities
Sporting, recreational or social activities can be carried out by a charity if they are merely a means used to achieve charitable purposes.
Example : charities
Charities are not political, lobbying or promotional
An entity is not charitable if its dominant purpose is advocating a political party or cause, attempting to change the law or government policy, or merely promoting a particular point of view.
However, if an entity's purpose is otherwise charitable, the presence of political, lobbying or promotional activity that is incidental to the charitable aims will not prevent it being a charity.
Example : charities
Political parties and organisations promoting political parties or their policies are not charitable.
Example : non-charity
An entity whose dominant purpose is to change the law or government policies is not charitable. This is so even if the subject matter of the change may be beneficial to the community or is of great concern to the community.
Example : non-charity
An entity seeking to maintain existing law or government policy is also considered not charitable.
An entity which aims to promote a particular point of view or endeavours to convince the public of the correctness of such a view is not charitable. This is irrespective of whether the view seeks to change law or government policy, or uses educational means to achieve its aims.
Example : non-charities
Governmental
Government departments and instrumentalities are unlikely to be charitable institutions. They are simply carrying on the ordinary activities of a Government department. This is so even if the activities are such that if carried on by private persons they would be charitable.
Example : non-charity
However, charities frequently receive government funding. This does not stop them being charities.
Example : charity
Checklist - am I a charity?
- be an entity (corporation, unincorporated association, trust or partnership etc)
- be an institution
- be able to demonstrate from your constituent or governing documents and your activities that you are carried on for the public benefit or the relief of poverty
- be non-profit. This means you are not carried on for the profit or gain of your owners, members or other private persons
- not be:
- carried on for sporting, recreational or social purposes
- carried on for political, lobbying or promotional purposes, or
- a government instrumentality carrying out the ordinary functions of government
- from the listing that applies to you (Types of organisation listing) have a sole or dominant purpose:
- within the characteristics in the Description
- the same as, or equivalent to, that of any organisation in the Charities - examples, and
- not the same as, and not equivalent to, any in the Non-charities - examples.
If you are a charity, you will need to know the special income tax arrangements for charities. They are explained in CharityPack which is available from the ATO by phoning 13 24 78. Charities are not automatically exempt from income tax and must be endorsed by the ATO.
Type of organisation listing
For each group of charities, the following listing gives a description of the characteristics of organisations that are charities. It then gives examples of typical charities and non-charities in alphabetical order. You should check both examples.
These lists are intended to be illustrative of the guidelines and principles set out in this appendix and are not exceptions to them.
The list of examples of charities and non- charities in this appendix is not exhaustive.
Your organisation could fall into more than one group of charity. You should check other groups.
Use the Checklist - am I a charity? to confirm whether you are a charity.
Group | Group |
Aged persons | Locality or neighbourhood |
Animals | Moral improvement |
Culture | People with disabilities |
Defence and public order | Poverty |
Disaster relief | Public works and utilities |
Education | Religion |
Environment | Research |
Health | Science |
Indigenous persons | Unemployment |
Industry, commerce, agriculture | Young persons |
Aged persons
Description
Non-profit entities that operate for the public benefit to relieve needs arising from old age are charities. Needs can involve accommodation, nursing and health care, security, isolation and loneliness.
Social, recreational and lobbying groups are not charities. Organisations that are primarily for the benefit of members are not charitable.
Charities - examples
- Alzheimer's associations
- arthritis foundations
- community services that provide food, home visits and assistance with shopping for the elderly and infirm
- home maintenance services for the elderly and frail
- respite services
- senior citizen organisations if they are not lobbying or merely social or recreational
- trust funds distributing solely to charities that relieve the needs of the aged
Non-charities examples
- lobbying bodies including lobbying of government on social security benefits and entitlements
- political bodies
- social, sporting and recreational bodies even where the majority of participants are aged people
(Note: some organisations will be charitable where the social, sporting and recreational purpose is ancillary to a charitable purpose of alleviating the needs of the elderly in terms of health, isolation and loneliness. Each case will depend on the circumstances.)
Animals
Description
Non-profit entities that operate for the public benefit to protect, care for, preserve, or study animals, or improve the community's moral feelings towards them, are charities.
Recreational, sporting, lobbying and private bodies are not charities. Organisations that are primarily for the benefit of members are not charitable.
Charities - examples
- animal protection societies
- animal refuges and shelters which help lost, sick or injured animals including organisations that care for unwanted and deserted pets
- cat protection societies involved in caring and finding homes for unwanted kittens and cats and promoting the de-sexing of animals
- endangered species organisations whose purpose is to conserve particular animal species and look after their well-being, for example koala preservation societies
- guide dog associations
- scientific bodies studying animal behaviour and disseminating information to the public
- wildlife hospitals which provide care and sanctuary for injured wildlife
- wildlife protection societies involved in protecting and preserving wildlife and organising wildlife rescues
Non-charities examples
- animal rights bodies that are lobbying in nature
- animal racing organisations, for example horse racing, greyhound racing and pigeon racing
- anti-vivisection societies
- breeders associations that represent the interests of breeders and help members in their breeding activities
- fanciers and owners associations, for example canary clubs and beekeepers associations
- fishing and angling clubs
- funds for particular animals, for example a trust under a will for a deceased person's cat
- lobbying and political bodies
Culture
Description
Non-profit entities that operate for the public benefit to advance the arts or educate the public in the arts are charities.
Recreational, entertainment, lobbying and private bodies are not charities. Organisations that are primarily for the benefit of members are not charities.
Charities - examples
- arts societies which encourage and promote the cultivation and appreciation of the fine arts
- ballet foundations to promote and encourage interest in ballet
- bodies promoting culture and the arts in schools
- choral and orchestral societies
- friends of public museums and art galleries
- opera companies that are non-profit
- public art galleries
- public libraries
- public museums
- trust funds distributing solely to charities that promote the arts
Non-charities - examples
- antique or vintage car clubs
- bridge and other card clubs
- camera clubs
- cinema clubs
- doll clubs
- ethnic social and cultural associations
- historical re-enactment clubs
- professional associations of artists, dancers, musicians, curators, educators in the cultural arts field, and the like
- science fiction clubs
- social clubs and organisations
- stamp-collecting clubs
- trade unions
Defence and public order
Description
Non-profit entities that operate for the public benefit to contribute to the defence of Australia and to help maintain public order are charities.
Social and recreational groups are not charities. Government instrumentalities carrying out the ordinary functions of government are unlikely to be charities.
Charities - examples
- defence research organisations which provide research into aspects of Australian defence and national security
- disabled soldier associations which care for soldiers injured or maimed during service, for example blinded soldiers associations and limbless soldiers associations
- family support organisations which help the families of deceased veterans or police personnel
- historical societies which record and research the history of the armed forces
- social welfare organisations for the benefit of armed forces personnel and their dependants
- volunteer emergency rescue bodies
- veterans organisations if their purpose is to provide welfare services for veterans
Non-charities - examples
- government instrumentalities carrying out the ordinary functions of government
- homing pigeon associations
- pistol and rifle clubs
- social or cultural groups set up by defence force members, police or emergency personnel
- trade unions and employee associations for members of the police force and other emergency personnel
Disaster relief
Description
Non-profit entities that operate for the public benefit to relieve or prevent the distresses caused by natural and man-made catastrophes are charities.
Government instrumentalities are unlikely to be charities.
Charities - examples
- cyclone relief funds
- flood relief funds
- public funds for disaster relief
- public funds relieving necessitous circumstances
- surf lifesaving clubs
- volunteer emergency rescue bodies
Non-charities - examples
- employee associations that protect the industrial interests of employees in the emergency services sector
- funds for private persons who have been in natural or man-made disasters
- government instrumentalities carrying out the ordinary functions of government
Education
Description
Non-profit entities that operate for the public benefit to advance education are charities.
Organisations run for the profit of their owners or the common interests of members (for example professional and business associations) are not charities. Lobbying and political bodies are not charities.
Charities - examples
- bursary and prize funds set up to reward academic excellence that are for a section of the public and not for private interests such as the employees of an employer
- childbirth education bodies
- educational institutes which are not party political and whose purpose is to stimulate debate on cultural, political, economic, moral or philosophical issues
- grammar schools
- health education bodies, for first aid and resuscitation
- historical societies whose purpose is to preserve historical items and educate the public in history
- industry training organisations if they are for the public benefit and not only for particular businesses
- kindergartens
- parents and friends groups of non-government schools
- parents and citizens groups of government schools
- pre-schools
- public universities
- schools and colleges run by religious denominations
- school and university sports organisations where they are integrated with the advancement of education in charitable education institutions
- scholarship trust funds set up to give scholarships for students of a particular school
- Scouts and Guides
- student union bodies if they are integrated in a particular university or college
- Sunday school associations
- trust funds distributing solely to educational charities
Non-charities - examples
- childcare centres
- computer users clubs
- educational trusts for individuals, family members or employees of particular employers
- lobbying bodies which promote a particular view, for example organisations promoting euthanasia, the rights of the unborn child or funding of education
- occupational associations which educate only members
- playgroups
- professional associations for accountants, lawyers, writers, sales people, etc
- public speaking associations
- social clubs and organisations including ex-student associations
- sporting organisations even where they involve school-age children as participants, for example a junior football club
- teachers associations which further the professional interests of teachers or represent their views
- trade unions such as academic staff associations and teachers unions
Environment
Description
Non-profit entities that operate for the public benefit to protect, preserve, care for, and educate the community about the environment are charities.
Lobbying and political bodies are not charities.
Charities - examples
- conservation bodies which help protect the environment provided they are not for lobbying or political purposes
- environmental associations whose purpose is to educate the public about environmental issues
- flora and fauna conservation societies which are not political or lobbying in nature
- friends of botanic gardens
- Landcare groups and other greening organisations involved in tree-planting and revegetation
- marine conservation societies which are involved in the conservation of Australia's coastal areas or coral reefs
- natural resource organisations which educate the public about the wise use of Australian resources such as soil, water and forests
- support groups for national parks
Non-charities - examples
- bushwalking clubs
- government instrumentalities carrying out the ordinary functions of government
- lobbying bodies even if their activities may have consequences for the environment
- outdoor recreation clubs
- political bodies
- resident action groups set up to oppose planning policies detrimental to their lifestyle
- watersports clubs
Health
Description
Non-profit entities that operate for the public benefit to advance health are charities.
Organisations run for the profit of their owners or the common interests of members (for example health funds) are not charities. Lobbying and political bodies are not charities.
Charities - examples
- accommodation services for the relatives of hospital patients
- alcohol and drug education bodies
- Alzheimer's associations
- arthritis foundations
- associations supporting nursing mothers
- auxiliaries of public hospitals
- alcohol drug rehabilitation services
- family planning services and contraception organisations
- family support services providing services such as counselling
- health promotion bodies for example cancer councils, diabetes societies, epilepsy associations, heart and asthma foundations
- medical counselling organisations for psychiatric illnesses and disorders
- medical research bodies
- natural family planning organisations
- nursing services
- patient transport services
- pregnant women support services
- support groups for sufferers of a particular disease or disorder, for example drug dependence or chronic fatigue syndrome
- trust funds distributing to charities that promote health or relieve sickness
- women's shelters
Non-charities - examples
- friendly societies that are not carried on solely for the relief of poverty
- health benefit funds
- hospitals run by mutual societies or for-profit entities
- hospital benefit funds
- medical benefit funds
Indigenous persons
Description
Non-profit entities that operate for the public benefit to advance the condition and welfare of Australian indigenous persons are charities.
Organisations run for the profit of their owners or the common interests of members (for example business associations) are not charities. Lobbying and political bodies are not charities.
Charities - examples
- Aboriginal and Islander health and welfare bodies
- Aboriginal and Islander legal services
- cultural organisations for indigenous art, dance or history
- educational and resource centres for Aborigines and Islanders
- family support services for Aborigines and Islanders
- housing cooperatives for Aborigines and Islanders
- research organisations into Aboriginal and Islander affairs
- youth services for Aborigines and Islanders
Non-charities - examples
- lobbying and political bodies
Industry, commerce, agriculture
Description
Non-profit entities that operate for the public benefit to advance industry, commerce or agriculture are charities.
Organisations run for the profit of their owners or the common interests of members (for example business associations) are not charities. Providing services to, and furthering the private interests of, businesses or agriculturalists are not charitable purposes.
Lobbying and political bodies are not charities.
Charities - examples
- agricultural show societies
- apprenticeship and traineeship organisations if they are for the public benefit and not for particular businesses
- industry training organisations if they are for the public benefit and not for particular businesses
- research organisations that make the benefits of their research publicly available
Non-charities - examples
- aviation clubs
- breeders associations that represent the interests of breeders and help members in their breeding activities
- business associations which exist for the benefit of members
- co-operatives which provide buying and selling services for members
- development or progress associations campaigning on governmental or planning issues
- employer associations
- farmers and growers bodies advancing the business interests of their farmer or grower members
- hobby farmers associations
- industry regulators
- marketing agencies
- professional associations set up to advance a profession or its members, for example associations of accountants, administrators, doctors, engineers, surveyors, lawyers, secretaries and executives
- retailer or seller associations promoting or marketing businesses and their products
- trade unions
Locality or neighbourhood
Description
Non-profit entities that operate for the public benefit to provide charitable benefits for a particular town, city or region are charities.
Organisations will not be charities simply because they operate in a particular region. For example, a social club for the residents of a particular suburb is not a charity.
Charities - examples
- accommodation providers for the needy
- citizens advice bureaus
- community information and referral services which make people aware of rights and responsibilities and the services and facilities available to them
- community justice and mediation centres which provide informal dispute resolution services
- crisis accommodation services
- family support services providing services such as counselling
- health information organisations which collect and disseminate health information
- historical societies whose purpose is to preserve historical items and stimulate interest in history
- information, translating and interpreting services for migrants
- marriage counselling organisations
- migrant resource centres
- multiple birth organisations
- neighbourhood centres
- public radio stations
- relationships counselling organisations
- surf lifesaving clubs
- telephone crisis counselling services
- women's shelters
- associations supporting the work of the United Nations
Non-charities - examples
- expatriate organisations providing a social forum for people from a particular country
- lobbying groups
- political parties
- republican or monarchist organisations
- recreational clubs promoting sporting or recreational activities in a region
- resident action groups lobbying on development or planning issues
- social clubs for newcomers to a particular residential area
- traditional service clubs
Moral improvement
Description
Non-profit entities that operate for the public benefit to advance moral improvement in society are charities.
Lobbying and political bodies are not charities.
Charities - examples
- alcohol and drug education bodies
- community justice and mediation centres which provide informal dispute resolution services
- ethical societies
- marriage counselling organisations
- relationships counselling organisations
- road safety organisations which educate on dangers of drink-driving, fatigue or dangers of speeding
- temperance societies
- associations supporting the work of the United Nations
Non-charities - examples
- lobbying and political bodies on issues such as morals, animals, the environment etc.
- fraternal associations
People with disabilities
Description
Non-profit entities that operate for the public benefit to relieve needs arising from physical or mental disability are charities.
Organisations catering for people with disabilities, but not for the relief of their special needs, (such as purely social or recreational bodies) are not charities. Lobbying and political bodies are not charities.
Charities - examples
- Braille libraries
- carer support services
- community organisations that provide food, home visits and assistance with shopping for people with disabilities
- disability resource centres
- disability employment services
- guide dog associations
- information support services for people with disabilities and their carers
- intellectually handicapped associations
- respite care services
- sheltered workshops
- spastic societies
- support organisations for people with particular disabilities, for example autism, cerebral palsy, Down's syndrome, hearing or sight impairment, and paraplegia
- toy libraries for the handicapped
- trust funds distributing solely to charities that relieve disability
Non-charities - examples
- lobbying bodies
Poverty
Description
Non-profit entities that operate solely to relieve poverty are charities.
Charities - examples
- accommodation providers for the needy
- community services that provide food to the elderly and infirm
- crisis accommodation services
- hostels for the homeless
- overseas aid organisations
- prisoners aid associations
- refugee relief bodies
- soup kitchens
- trust funds distributing solely to charities that relieve poverty
Non-charities - examples
- lobbying and political bodies
Public works and utilities
Description
Non-profit entities that operate for the public benefit by providing socially necessary facilities for use by the community are charities.
Government instrumentalities carrying out the ordinary functions of government are unlikely to be charities.
Charities - examples
- botanic gardens
- halls provided for public use
- law reporting councils
- public art galleries
- public libraries
- public museums
- observatories
- trusts for places of historic interest
- providers of public recreational facilities, such as sporting fields and public parks
- public radio stations
- showground societies
Non-charities - examples
- fee-for-service providers of normal amenities such as cinemas and shops
- government instrumentalities carrying out the ordinary functions of government
Religion
Description
Non-profit entities that operate for the public benefit to advance religion in a direct and immediate sense are charities.
Religion involves belief in a supernatural being, thing or principle and acceptance of canons of conduct which give effect to that belief.
Charities - examples
- Bible colleges
- Bible societies distributing religious literature
- building funds for the construction, maintenance or furnishing of church buildings, mosques, synagogues etc
- church choirs
- churches and other religious congregations
- clergy funds to maintain priests, pastors, ministers of religion, students for the ministry etc
- institutions of missionaries
- religious instruction funds for teaching religion in schools
- religious orders but not orders which do not act for the public benefit
- religious retreat bodies for lay persons
- seminaries
- Sunday school associations
Non-charities - examples
- family companies controlled by family members and friends, even where they practice religion
- for-profit entities that sell religious books, artefacts and other materials
- fraternal associations
- lobbying bodies, for example groups applying pressure on church governance issues
- self-betterment groups which are designed to enhance personal success
- social clubs for the followers of a particular religion
Research
Description
Non-profit entities that operate for the public benefit by carrying out research are charities. The subject matter of the research must be useful to the community (for example agriculture, education, health, indigenous culture, public administration or water) and the results must be made publicly available.
Lobbying bodies that carry out research to promote their aims are not charities.
Non-charities - examples
- business research bodies if the research is primarily for particular businesses or groups of businesses
- lobbying bodies whose research is only a means for their lobbying aims
Science
Description
Non-profit entities that operate for the public benefit by advancing science are charities.
Professional associations carried on for the benefit of a profession or its members (such as engineers, doctors, or surveyors) and other organisations run for the benefit of their members are not charities. Hobby groups are not charities.
Charities - examples
- archaeological societies
- astronomical societies that are not hobby groups
- botanical societies
- geographical societies
- herpetological societies that are not hobby groups
- scientific research organisations
Non-charities - examples
- business associations
- employer associations
- industry regulators
- professional associations
- trade unions
Unemployment
Description
Non-profit entities that operate for the public benefit to relieve needs arising from unemployment are charities.
Organisations run for the profit of their owners or the common interests of members are not charities. Lobbying and political bodies are not charities.
Charities - examples
- apprenticeship or traineeship organisations if they are for the public benefit and not for particular businesses
- vocational guidance counselling bodies that are non-profit
- disabled persons employment services
- prisoner employment services for recently released prisoners
- training organisations if they are non-profit and operate for the public benefit
Non-charities - examples
- commercial enterprise entities are not charities merely because they take on unemployed people
- employers will not be charities merely because they provide employment opportunities for disadvantaged people
- recruitment organisations for employers
Young persons
Description
Non-profit entities that operate for the public benefit to assist, educate and develop young people are charities.
Sporting, social and recreational groups are not charities.
Charities - examples
- child abuse associations which exist to prevent cruelty to, or exploitation of, children and are not political or lobbying in nature
- children's disease organisations, such as asthma foundations and cancer foundations
- child health associations
- children's disability organisations which provide services and information to carers of children with disabilities
- information services for young people providing advice and support on a range of issues such as health and accommodation
- youth development programs, for example Scouts, Brownies and Guides
- youth orchestras
- youth leadership associations
- youth suicide organisations
Non-charities - examples
- childcare centres
- playgroups
- sporting organisations for the young, for example cricket and junior football.
Appendix 3 - List of definitions
Australian Business Number (ABN)
The Australian Business Number is the new identifier for your dealings with the ATO and for future dealings with other departments and agencies.
Business Activity Statement
This is the single form you use to account for FBT instalments, GST and some other taxes at the end of each tax period under The New Tax System. Organisations not registered for GST will use an Instalment Activity Statement to report their entitlements and obligations.
Charity
A charity is an institution or fund established for a charitable purpose. Charitable purposes are those which the law regards as charitable. The term 'charitable' has a technical legal meaning which is different from its everyday meaning. Charitable purposes are:
- the relief of poverty or sickness or the needs of the aged
- the advancement of education
- the advancement of religion, and
- other purposes beneficial to the community.
Deductible gift recipient (DGR)
A DGR is an entity that is entitled to receive income tax deductible gifts. All DGRs have to be endorsed, unless they are named specifically in the income tax law. There are two types of DGR endorsement. One is for entities that are DGRs in their own right. The other is for an entity that is a DGR only in relation to a fund, authority or institution that it operates. For the second type, only gifts to the fund, authority or institution are tax deductible.
Entity
An entity is an individual (for example a sole trader), a body corporate (a company), a corporation sole (an ongoing paid office, for example a bishopric), a body politic, a partnership, an unincorporated association or body of persons, a trust, or a superannuation fund.
Fringe benefits tax (FBT)
FBT is a tax payable by employers who provide fringe benefits to their employees or associates of their employees.
Goods and services tax (GST)
GST is a broad-based tax of 10 per cent on the supply of most goods, services and anything else consumed in Australia and the importation of goods into Australia.
GST-free
If a supply is GST-free you do not include GST on the supply, but you are entitled to input tax credits for anything acquired or imported for use in your activities.
Income tax exempt charity (ITEC)
An ITEC is a charity that has been endorsed by the ATO as exempt from income tax.
Input tax credits
When you pay GST on any taxable supplies you purchase or acquire for use in your activities, you can claim these amounts (called input tax credits) back from the ATO.
Non-profit
An organisation is non-profit for determining income tax exempt status if it is not carried on for the profit or gain of its individual members. This applies for direct and indirect gains, and both while the organisation is being carried on and on its winding up. The ATO accepts an organisation as non- profit if its constitution or governing documents prohibit distribution of profits or gains to individual members and its actions are consistent with the prohibition.
Non-profit company
A non-profit company for determining rates of income tax and whether to lodge income tax returns is:
- a company that is not carried on for the purposes of profit or gain to its individual members and is, by the terms of the company's constituent documents, prohibited from making any distribution, whether in money, property or otherwise, to its members, or
- a friendly society dispensary.
Non-profit sub-entity
Certain non-profit organisations, with independent branches (units), have the option of treating their units as if they were separate entities for GST purposes and not part of the main organisation.
Pay As You Go (PAYG) instalments
PAYG instalments replaces provisional tax and company and superannuation fund instalments tax. Under PAYG instalments, taxpayers who are notified by the ATO of an instalment rate will be required to pay their own income tax by regular self-assessed instalments.
Pay As You Go (PAYG) withholding
PAYG withholding requires an entity to withhold an amount if it makes certain listed payments including salary, wages, commission, bonuses or allowances to an employee, directors' fees, payments for a supply (goods or services) to another business which does not quote an ABN, and certain dividend, interest and royalty payments.
Supplies
Supplies include the goods and services you sell as part of your activities. Not all supplies are taxable supplies.
Taxable supply
The term is widely defined to include most supplies (goods, services and anything else) you make. A supply is not a taxable supply if it is GST-free or input taxed.
Appendix 4 - Worksheet - working out your organisation's income tax status
This worksheet has been prepared to help organisations work out their income tax status. Do not write on the original worksheet - keep it as a template so that you can make copies whenever you carry out a self-review.
You should use this worksheet whenever you want to check your income tax status. The ATO recommends that you review the status of your organisation each year. You should also review when there has been a major change in structure or activities. It is the organisation's responsibility to ensure that any changes which may alter its status are considered at the time that the changes become evident.
Who should use this worksheet
Clubs, societies and associations should use this worksheet. It is not to be used by charities, friendly societies, employee associations, employer associations, trade unions, or health, hospital or medical benefits organisations. Charities should use CharityPack which also includes a worksheet. Friendly societies should refer to here in the ClubPack, and the employment organisations here.
What you will need
- a copy of ClubPack (and the latest ClubPack Updater)
- your constituent or governing documents (for example, constitution, rules, memorandum and articles of association), and
- information about your organisation's activities, finances, plans, advertisements and history.
Once you have worked out your income tax status, you do not need to apply to the Australian Tax Office (ATO) to have it confirmed. When you have completed this worksheet, do not send it to the ATO. Keep it with the records of your organisation. It will show why and how you arrived at the decision of your organisation's income tax status and help future office bearers.
1. Full name of the organisation
2. Australian Business Number (ABN) (if held)
3. Period of review
To |
4. Reason for review
Change in activity
Annual review
Other - please specify
-------------------
CHARITY
5. Is your ABN still current?
Yes
Do not continue with this worksheet. You should use CharityPack, available from the ATO. There is an endorsement process for charities to be exempt from income tax. Your entity may be eligible for endorsement as an income tax exempt charity (ITEC). CharityPack explains conditions attached to obtaining ITEC endorsement.
No
Go to question 6.
An explanation of what is a charity is explained in appendix 2 of ClubPack.
A charity is an organisation whose dominant purpose is the carrying on of charitable purposes. Charity has a legal meaning for taxation purposes which differs from how it is used in ordinary language. Charitable purposes fall into several broad categories:
- the relief of poverty, sickness and the needs of the aged
- the advancement of education
- the advancement of religion, or
- other purposes beneficial to the community.
NOTES: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Exempt Organisation
6. Does your organisation fall within one of the categories of exempt organisation listed below?
Yes
Go to question 7.
No
The entity is not income tax exempt. Go to question 8.
The following types of organisations can be exempt from income tax:
Cultural organisations
- art - a non-profit society, association or club established for the encouragement of art
- literature - a non-profit society, association or club established for the encouragement of literature
- music - a non-profit society, association or club established for the encouragement of music
- musical purposes - a non-profit society, association or club established for musical purposes
Community service organisations
- community service - a non-profit society, association or club established for community service purposes (except political or lobbying purposes)
Educational organisations
- public educational institution
Health organisations
- public hospital
- non-profit hospital - hospital carried on by a non-profit society or association
Religious organisations
- religious institution
Resource development organisations
- agricultural resources - a non-profit society or association established for the purpose of promoting the development of Australian agricultural resources
- aquacultural resources - a non-profit society or association established for the purpose of promoting the development of Australian aquacultural resources (for the year 1999-2000 and later years)
- aviation - a non-profit society or association established for the purpose of promoting the development of aviation
- fishing resources - a non-profit society or association established for the purpose of promoting the development of Australian fishing resources (for the year 1999-2000 and later years)
- horticultural resources - a non-profit society or association established for the purpose of promoting the development of Australian horticultural resources
- industrial resources - a non-profit society or association established for the purpose of promoting the development of Australian industrial resources
- manufacturing resources - a non-profit society or association established for the purpose of promoting the development of Australian manufacturing resources
- pastoral resources - a non-profit society or association established for the purpose of promoting the development of Australian pastoral resources
- tourism - a non-profit society or association established for the purpose of promoting the development of tourism
- viticultural resources - a non-profit society or association established for the purpose of promoting the development of Australian viticultural resources
Science organisations
- scientific institution
- science association - a non-profit society, association or club established for the encouragement of science
- scientific research fund - a fund established to enable scientific research to be conducted by, or in conjunction with, a public university or public hospital
Sports organisations
- animal racing - a non-profit society, association or club established for the encouragement of animal racing
- game or sport - a non-profit society, association or club established for the encouragement of a game or sport
7. Does your organisation meet all the conditions for exemption as specified in the relevant part of ClubPack?
Yes
Your organisation is income tax exempt. Go to the end of the worksheet.
No
Your organisation is not income tax exempt. Go to question 8.
The table in chapter 1 of ClubPack tells you where to find more information about the categories of exempt organisations listed in question 6. Read this extra information for the category that you think applies to your organisation. This information is necessary for working out whether your organisation is exempt from income tax.
You will need your constituent or governing documents and information about your activities, finances, plans, advertisements and history.
NOTES: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Non-Profit Company
8 Is your organisation a company that meets both the following requirements?
- it is not carried on for the purposes of profit or gain to its individual members, and
- its constituent documents prohibit it from making any distribution, whether in money, property or otherwise, to its members
Yes
Your organisation is a non-profit company for income tax purposes. This affects whether you need to lodge income tax returns and the rate of tax: see chapter 2 of ClubPack.
No
The entity is not a non-profit company. It must lodge income tax returns.
The requirements to be a non-profit company for income tax purposes are explained further here.
NOTES: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Once you have completed the worksheet you should:
- sign it off and keep it with your organisation's other records,
- make an entry in the log at the back of ClubPack showing you have performed the review.
Name of person conducting review
Position held
Signature
Date
Approval by Board/Committee
Appendix 5 - Log of reviews
Record your organisation's key information in the table below:
Record of key information:
Name of organisation | |
Australian Business Number (ABN) | |
Tax File Number (TFN) |
We recommend you make an entry in the log below each time you conduct a review of your organisation's income tax status.
A worksheet has been provided to assist you with these reviews - see Appendix 4 - Worksheet - working out your organisation's income tax status.
Period reviewed | Income tax status
| Person conducting review | Position held | Signature | Date | |
Start date | End date | |||||
Need more information?
If you would like to find out more about clubs, societies and associations and The New Tax System:
- phone the business Tax Reform Infoline on 13 24 78
- download information from our web site at www.taxreform.ato.gov.au
- obtain A Fax From Tax on 13 28 60, or
- write to us at PO Box 9935 in your capital city.
If you do not speak English and need help from the ATO, phone the Translating and Interpreting Service (TIS) on 13 14 50.
People with a hearing or speech impairment can phone the Telephone Typewriter Service on 1300 130 478.
ATO references:
NO NAT 13727