Sales Tax Bulletin - No. 5

STB 5

Public Benevolent Institutions

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Date of Issue: 1 May 1997

Valid from 1 May 1997

About this bulletin

This bulletin explains how the sales tax law affects public benevolent institutions and their support bodies. It is a public ruling for the purposes of section 77 of the Sales Tax Assessment Act 1992 and may be relied upon by any person to whom it applies. It replaces any previous private or public rulings, if they are inconsistent with the bulletin, and is current as at 1 May 1997.

Exemption from sales tax for goods for use by a public benevolent institution can be claimed under Item 140(c) and for support bodies under Item 141 in Schedule 1 to the Sales Tax (Exemptions and Classifications) Act 1992.

If, after reading this bulletin, you need more information on how the sales tax law affects your organisation, contact your local Tax Office on 13 28 66 for the cost of a local call.

What is sales tax?

Sales tax is a tax paid on goods manufactured in, or imported into Australia. It is generally paid when the goods are sold by a manufacturer or wholesaler to a retailer. Some goods are always exempt from sales tax. These include most foodstuffs, medicines and surgical goods, building materials, clothing, books, magazines, periodicals and newspapers.

In special circumstances, exemption from sales tax can be claimed on goods which are normally taxable. Goods purchased by public benevolent institutions fall into this category.

What is a public benevolent institution?

A public benevolent institution is an organisation which:

• • is established and carried on for the relief of poverty, sickness, suffering, distress, misfortune, destitution or helplessness;

• • is carried on without purpose of private gain for particular persons;

• • provides relief for the benefit of a disadvantaged section or class of the public; and

• • makes its services available without discrimination to every member of the public which the organisation aims to benefit.

Whether an organisation is a public benevolent institution is a question of fact in each case.

However, the following points should be noted:

• • the organisation must have as its main or dominant object and activity, the direct and immediate relief of poverty, sickness, suffering, distress, misfortune, destitution or helplessness. Any non-benevolent objects or activities must be ancillary and incidental to its dominant purpose, or minor in extent and importance;

• • in the context in which the term 'private gain' is used in describing a public benevolent institution, this does not mean that the persons rendering services in providing the relief for which the organisation was established, cannot be properly remunerated;

• • a section or class of the public does not necessarily mean the community as a whole. It may refer only to persons suffering from a particular ailment; and

• • the fact that fees may be charged to persons seeking assistance does not, of itself, preclude an organisation from being a public benevolent institution.

Examples of whether some of the more common types of organisations are public benevolent institutions

• (a) Aged persons clubs may be public benevolent institutions where their primary aim is to alleviate loneliness, a misfortune inherent in old age.

• (b) Charitable or non-profit organisations are not necessarily public benevolent institutions.

• (c) Community bodies which generally would not be public benevolent institutions include:

  • • child minding centres (exemptions available to child care bodies are detailed separately in Bulletin No. 20 titled Sales Tax - Exemptions for child care bodies, available from your local Tax Office), playgroups, baby health centres and kindergartens;

  • • conservation groups, animal welfare groups and domestic pet owners groups;

  • • contraception or family planning services;

  • • credit unions, building societies, friendly societies;

  • • political parties and lobby groups;

  • • professional and trade associations, chambers of commerce, trade unions;

  • • progress associations, community associations, community activities centres, advice bureaus, development associations, neighbourhood watch groups and agricultural societies;

  • • Scouts, Brownies, Guides and similar organisations;

  • • social, cultural and sporting clubs e.g., leagues clubs, R.S.L. clubs and community radio stations; and

  • • service clubs such as Rotary, Apex, Lions (separately constituted fund raising bodies which raise funds for donation to public benevolent institutions may qualify for exemption. See the section about support bodies on page 7)

• (d) Counselling organisations may be public benevolent institutions where their services are predominantly to meet needs for benevolent relief. For example, organisations providing counselling for alcoholics, newly discharged prisoners, and Aborigines adjusting to city life have been accepted as public benevolent institutions. However, they do not include marriage, financial, family and similar counselling organisations.

• (e) Government departments and agencies are unlikely to be public benevolent institutions. They promote community welfare generally rather than provide benevolent relief.

• (f) Government funded organisations can be public benevolent institutions only if they operate mainly to provide direct and immediate relief of misfortune, suffering, destitution, etc.

• (g) Housing schemes may be accepted as the provision of public benevolence where they are operated by non-profit organisations to provide low rental or subsidised accommodation to underprivileged persons.

• (h) Legacies providing benevolent services to the dependants of ex-members of the armed forces are public benevolent institutions.

• (i) Legal aid services may be public benevolent institutions where they are carried on predominantly to handle the legal affairs of the needy and underprivileged.

• (j) Marriage guidance organisations are not regarded as public benevolent institutions.

• (k) Migrant resource centres are not regarded as public benevolent institutions. In contrast, non-profit organisations that are carried on predominantly to relieve the helplessness of refugees may be public benevolent institutions.

• (l) Pensioner organisations will only be public benevolent institutions where they are carried on predominantly to alleviate needs of persons requiring benevolent relief. In contrast, pensioner organisations which are carried on primarily for political or lobbying purposes, managing funeral funds for financial members, or running homes or flats for members will not be regarded as public benevolent institutions.

• (m) Religious organisations will only be public benevolent institutions where their primary purpose and predominant activity is the provision of direct relief of poverty, sickness etc. If the benevolent activities are subsidiary to religious purposes, they will not qualify as public benevolent institutions. (Exemptions in respect of goods for use for the purposes of church services and goods for religious devotion are detailed separately in Bulletin No. 34 titled Sales Tax - Goods used in church services & religious devotion, available from your local Tax Office.)

• (n) Women's health centres will only be public benevolent institutions where their predominant purpose and operation is the provision of benevolent relief. If this is only one among many activities - such as counselling, referral, education, public awareness, lobbying - the centre will not be regarded as a public benevolent institution.

How can our organisation become recognised as a public benevolent institution by the Tax Office?

If you've not already been accepted as a public benevolent institution, you can write to the Tax Office to ask about the status of your organisation. Please supply the following details with your letter:

• (a) a copy of the organisation's constitution or rules (see below for information on non-profit and dissolution clauses in your constitution);

• (b) details of the objects of the organisation which are regarded as benevolent;

• (c) details of its activities, i.e., what does the organisation actually do to meet its objects?;

• (d) whether any activities other than providing benevolent relief are conducted by the organisation, and if so, their extent;

• (e) details of any charges made for services rendered, and whether there are provisions for the waiving of charges where the applicant is unable to pay the prescribed fee;

• (f) details of the criteria a person must satisfy to be considered eligible for assistance;

• (g) on what basis are those people satisfying the criteria referred to in (f) selected as recipients of assistance?;

• (h) copies of annual reports and financial statements for the last two years. Where possible, the financial statements should take the form of audited balance sheets and income and expenditure statements;

• (i) the nature of the control and management of the organisation. This should include the name, address, and occupation of each person on the management committee); and

• (j) sources of revenue of the organisation and whether these are kept separate from other revenues of the governing body (if applicable).

Example of a suitable non-profit clause

In order to be approved as a public benevolent institution, an organisation must be carried on without purpose of private gain for particular persons. This is evidenced by the inclusion of non-profit clauses which prohibit the distribution of profits to members, both during the lifetime of the organisation, and upon its dissolution. An example of a suitable non-profit clause is set out below.

'The assets and income of the organisation shall be applied solely in furtherance of its above mentioned objectives and no portion shall be distributed directly or indirectly to the members of the organisation except as bona fide compensation for services rendered or expenses incurred on behalf of the organisation.'

Example of a suitable dissolution clause

The dissolution clause will need to provide that any assets remaining on winding up will be distributed to another organisation with similar purposes. An example of a suitable dissolution clause is as follows.

'In the event of the organisation being dissolved, the amount which remains after such dissolution and the satisfaction of all debts and liabilities shall be handed over to an organisation which has similar objects and which is approved by the Commissioner of Taxation as a public benevolent institution for the purposes of any Commonwealth Taxation Act.'

It will not be necessary to apply to the Tax Office for sales tax exemption if your organisation has a letter received from us stating that the organisation is eligible for gift deductibility under item 4.1.1 of table 4 in subsection 78(4) of the Income Tax Assessment Act 1936. If you have received this letter from the Tax Office you are accepted as a public benevolent institution for sales tax purposes.

How do we claim exemption?

An organisation that is accepted as a public benevolent institution can buy taxable goods for its own use free of sales tax by giving an exemption declaration to the supplier. A blank copy of the form is shown on page 8. You can photocopy the blank form and use one each time you buy taxable goods. If you prefer, you can have the following wording printed onto your official order form:

If you wish, you can give your suppliers a periodic exemption declaration to cover all your tax free purchases in a period where that period does not exceed one year. The form to be used is at page 9.

Exemption declarations should be given to suppliers at, or before the time of purchase. To make it easier for you to order goods by phone the Tax Office has approved a two stage quoting process. This allows you to quote an exemption Item number over the phone when ordering goods and to provide a written exemption declaration within a reasonable time. In practice this will allow you to provide the written exemption declaration when paying the account.

What goods can we buy free of sales tax?

Goods which can be bought free of sales tax by quoting an exemption declaration to your supplier include:

• • goods for use in the general administration of the public benevolent institution, e.g., stationery, office furniture, office equipment;

• • buttons, badges and tokens for use in connection with raising funds;

• • goods bought for raffle prizes; and

• • goods supplied free to recipients of benevolent services, e.g., blankets, kitchen utensils, taxable beverages and foodstuffs etc.

Motor vehicles for use by a public benevolent institution may be bought free of sales tax if they are intended to be used by the organisation for two years or until they have travelled 40,000 km, whichever occurs earlier.

How long must the goods be used for?

You can only buy goods free of sales tax if they are for use by the public benevolent institution. To satisfy exemption requirements, the goods must be used for a minimum period of:

• • two years; or

• • the normal working life of the goods if it is less than two years; or

• • a time the Commissioner of Taxation considers to be appropriate in special circumstances.

The two year minimum requirement does not apply to consumable goods.

What about goods we give away as prizes or awards?

Goods for use by a public benevolent institution are exempt from sales tax no matter how the institution uses them.

However, you can also claim exemption on goods used by the institution for donation to another person or goods used as prizes in raffles or as awards to staff by giving an exemption declaration to the supplier in the form previously mentioned.

What goods can't we buy free of sales tax?

There are some goods that public benevolent institutions cannot buy free of sales tax. These include:

• • goods sold as part of a trading enterprise;

• • goods, such as pens or tea towels that are more than tokens, sold as part of fund raising appeals; and

• • goods purchased for hire or lease to other persons where those other persons are not entitled to any exemption from sales tax (these goods are considered to be for use by the hirer or lessee).

What if we claim exemption incorrectly?

If you claim exemption when you're not entitled to, you'll have to pay the sales tax on the goods. The sales tax law also provides for a penalty of $2,000 and/or double the amount of tax underpaid where you quote an exemption declaration when not entitled to, or in any other way falsely quote an exemption declaration.

Who can sign the exemption declaration?

Only authorised officers of the public benevolent institution should sign exemption declarations. You should keep proper controls to ensure that you only claim exemption to which you are entitled. You should also keep the blank exemption declarations in a safe place.

Can we get a refund if we forget to claim exemption?

Yes. If you have been accepted as a public benevolent institution and have borne sales tax on any goods for which exemption was appropriate, you can claim a refund from the Tax Office of the tax you have borne provided:

• • the total refund claim is for $200 or more (you can add smaller amounts together to reach $200);

• • the claim is made within three years of the date of purchase; and

• • the goods were not purchased before 17 December 1995.

Support bodies

Some organisations, whilst not being public benevolent institutions themselves, are set up to raise funds for public benevolent institutions. If an organisation was established and maintained principally for the purpose of raising funds for donation to public benevolent institutions, it is entitled to exemption on goods for its own use by quoting an exemption declaration under Item 141 in Schedule 1 to the Sales Tax (Exemptions and Classifications) Act 1992.

Other organisations that are not exempt themselves, such as service clubs like Apex and Rotary, may set up separately constituted fund raising bodies. Goods for use by these bodies principally in fund raising activities for public benevolent institutions may be bought free of sales tax.

If you think your support body may be eligible for exemption, please contact your local Tax Office on 13 28 66 for the cost of a local call.

Do you need more information?

If you have any questions or need more information about how the sales tax laws apply to you, please contact your local Tax Office:

• • by phone - on our national sales tax enquiry number 13 28 66. You can ring this number from anywhere in Australia for the cost of a local call; or

• • in person - by visiting the enquiry counter at your nearest Tax Office. Tax Office addresses are listed in TaxPack, as well as in your White Pages telephone directory.

ATO references:
NO NAT 1764.05.97