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NAT 7966-06.2011

You should use this guideif you are involved in thefinancial aspects of anon-profit organisation.

Use the Subscribe link onwww.ato.gov.au/nonprofitto receive free email updateson key tax issues affectingthe non-profit sector, newpulications we release fornon-profit organisations andchanges to tax law.

Tax basics fornonprofit organisations

A guide to tax issues affecting non-profit organisations includingcharities, clus, societies and associations

Guide for non-profit organisations

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AUSTRALIAN TAXATION OFFICE FOR THE

COMMONWEALTH OF AUSTRALIA, 2011

You are free to copy, adapt, modify, transmit and distriute this material asyou wish (ut not in any way that suggests the ATO or the Commonwealthendorses you or any of your services or products).

PUBLISHED BY

Australian Taxation OfficeCanerraJune 2011

JS 19539

OUR COMMITMENT TO YOUWe are committed to providing you with accurate, consistentand clear information to help you understand your rights andentitlements and meet your oligations.

If you follow our information in this pulication and it turns outto e incorrect, or it is misleading and you make a mistake asa result, we must still apply the law correctly. If that means youowe us money, we must ask you to pay it ut we will not chargeyou a penalty. Also, if you acted reasonaly and in good faith we

will not charge you interest.If you make an honest mistake in trying to follow our informationin this pulication and you owe us money as a result, we willnot charge you a penalty. However, we will ask you to paythe money, and we may also charge you interest. If correctingthe mistake means we owe you money, we will pay it to you.We will also pay you any interest you are entitled to.

If you feel that this pulication does not fully cover yourcircumstances, or you are unsure how it applies to you,you can seek further assistance from us.

We regularly revise our pulications to take account of anychanges to the law, so make sure that you have the latest

information. If you are unsure, you can check for more recentinformation on our wesite at www.ato.gov.au or contact us.

This pulication was current at June 2011.

ABOUT THIS GUIDETax basics for non-profit organisations is a guide to tax issueswhich may affect non-profit organisations, such as charities,clus, societies and associations.

You should use this guide if you are a treasurer, officeearer or employee involved in the administration of anon-profit organisation.

This guide:

n explains which taxes and concessions affect non-profit

organisationsn directs you to where you can find more detailed information.

Throughout this guide you will find important notes (look for theand symols) which will help you with key information.

You will also find more information oxes (look for thesymol) which will show any further steps you may need to

take or supplementary information you may need to refer to.

We often refer to quick codes (QC) and NAT numers. A quickcode is used to search for specific information on our wesite.NAT numers can e used to order pulications that areavailale in paper format.

For more information aout how to access ourpulications and services, see page 48.

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TA bASICS FO NON-OFIT OANISATIONS 1

CONTENTS

01GETTING STARTED 3

Is your organisation non-profit? 3

Tax concessions an overview 3

Types of non-profit organisations 5

egistering your organisation 7

Endorsement requirements for charities andincome tax exempt funds 8

02INCOME TAX 10

Income tax exemption 10

Taxale organisations 10

Consolidation 11

efunds of franking credits 12

03GOODS AND SERVICES TAX 13

What is goods and services tax? 13

egistering for ST 13

What does eing registered for ST mean? 13

What if your organisation is not registered for ST? 14

How to cancel your ST registration 14

ST concessions 15

ST ranches, groups and non-profit su-entities 19

rants and sponsorship 20

04EMPLOYEES AND OTHER WORKERS 21

Employees, independent contractors and volunteers 21

ay as you go withholding 21

Fringe enefits tax 22

Salary sacrifice arrangements 26

Superannuation guarantee 26

Employment termination payments 27

Higher education dets 27

Employees and child support 28

Independent contractors and tax 28

Volunteers and tax 28

05FUNDRAISING 30

Deductile gift recipients 30

Tax-deductile gifts 30

Tax-deductile contriutions 31

Workplace giving programs 31

Salary sacrifice and gifts 32

ST 32State/territory and local government regulations 32

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CONTENTS

2 TA bASICS FO NON-OFIT OANISATIONS

06RECORD KEEPING, ADMINISTRATIONAND PAYMENT 33

ecord keeping 33

bank accounts and tax file numer requirements 33

roving eligiility for supplier discounts 34

Withholding in usiness transactions 34

eporting and paying tax 36

budgeting to pay tax 39

07STATE/TERRITORY GOVERNMENT TAXES

AND DUTIES 40

Stamp duty 40

ayroll tax 40

Land tax 40

Contact details 41

DEFINITIONS 42

INDEX 46

MORE INFORMATION 48

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n Is your organisation non-profit? page 3

nTax concessions an overview page 3

n

Types of non-profit organisations page 5n egistering your organisation page 7

n Endorsement requirements for charities and income taxexempt funds page 8

01ETTIN STATED

IS YOUR ORGANISATION NON-PROFIT?Non-profit organisations operate in many areas of society.They can include:

n church schools

n churches

n community child care centres

n cultural societies

n environmental protection societies

n neighourhood associations

n pulic museums and lirariesn scholarship funds

n scientific societies

n scouts

n sports clus

n surf lifesaving clus

n traditional service clus.

A non-profit organisation is an organisation that is not operatingfor the profit or gain of its individual memers, whether thesegains would have een direct or indirect. This applies oth whilethe organisation is operating and when it winds up.

Any profit made y the organisation goes ack into the

operation of the organisation to carry out its purposes andis not distriuted to any of its memers.

We accept an organisation as non-profit where its constituentor governing documents prevent it from distriuting profitsor assets for the enefit of particular people oth while it isoperating and when it winds up. These documents shouldcontain acceptale clauses showing the organisationsnon-profit character. The income tax law does not prescriethe words that a non-profit organisation must have in itsconstituent documents. The following example clauses woulde acceptale, provided that other clauses do not contradictthem. The organisations actions must e consistent withthis requirement.

EXAMPLE CLAUSES

Nonprofit clauseThe assets and income of the organisation shall beapplied solely in furtherance of its above-mentionedobjects and no portion shall be distributed directly orindirectly to the members of the organisation exceptas bona fide compensation for services rendered orexpenses incurred on behalf of the organisation.

Dissolution clauseIn the event of the organisation being dissolved, the

amount that remains after such dissolution and thesatisfaction of all debts and liabilities shall be transferredto another organisation with similar purposes which is notcarried on for the profit or gain of its individual members.

A non-profit organisation can still make a profit, ut this profitmust e used to carry out its purposes and must not edistriuted to owners, memers or other private people.

EXAMPLE

A society makes a $40,000 profit for the year. It uses thisprofit to reduce its dets and provide for its activities in thefollowing year.

TAX CONCESSIONS AN OVERVIEWThere is a range of concessions availale to non-profitorganisations. Few of the concessions apply to all organisationsin the non-profit sector they generally apply to particular typesof non-profit organisations.

Tale 1 on page 4 provides a summary of tax concessions andthe types of non-profit organisations that can access them.

Tale 1 groups non-profit organisations as follows:

n charities pulic enevolent institutions, health promotioncharities, charitale institutions and charitale funds

n income tax exempt fundsn other non-profit organisations.

The tale refers you to more information aout eachconcession.

For an explanation of each type of non-profitorganisation, see Types of non-profit organisationson page 5.

There are also concessions for:

n pulic and non-profit hospitals and pulic amulance services

see FbT exemption on page 24n religious institutions see eligious institutions on page 25

and ST concessions for charities, gift deductile entitiesand government schools on pages 1516

n non-profit companies and live-in residential care workers see Non-profit companies and live-in residential carers onpage 26.

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01 ETTIN STATED


It is important to check the notes to tale 1, as your organisation may need to meet certain requirements efore it canaccess a concession.

TABLE 1: Summary of tax concessions and types of non-profit organisations

Types of nonprofit organisations

Tax concessions Charities Income taxexempt funds Other nonprofitorganisationsPublic benevolentinstitutions andhealth promotioncharities

Charitableinstitutions

Charitablefunds

Income tax exemption seepage 10

1 1 1 1 Certain types only2

FbT exemption (suject tocapping threshold) seepage 24

1 Certain types only3

FbT reate see page 25 1 Certain types only4

ST concessions forcharities and gift deductileentities see page 15


ST concessions fornon-profit organisations see page 15

Deductile gift recipients see page 30

6 Certaintypes only6

Certaintypes only6

6 Certain types only6

efunds of franking credits see page 12


NOTES TO TABLE 1

1 The organisation must e endorsed y us to access this concession see Endorsement requirements for charities and income tax exemptfunds on page 8.

2 Only certain types of non-profit organisations are exempt from income tax. Many non-profit organisations are taxale, ut may e entitled tospecial rules for calculating taxale income, lodging income tax returns and special rates of tax see Income tax exemption on page 10.

3 ulic and non-profit hospitals and pulic amulance services are eligile for this concession see FbT exemption on page 24.

4 Certain non-government non-profit organisations are eligile for this concession see FbT reate on page 25.

5 The organisation must e a deductile gift recipient to access this concession see Deductile gift recipients on page 30.

6 The organisation must e endorsed y us as a deductile gift recipient to access this concession. The only organisations that do not needto e endorsed are those listed y name in tax law see Deductile gift recipients on page 30.

7 The organisation must e an entity that is endorsed y us as exempt from income tax or a deductile gift recipient to access thisconcession see efunds of franking credits on page 12.

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01 ETTIN STATED


nThe advancement of religion, including religiouscongregations such as churches and synagogues,seminaries, religious orders, organisations for uilding orrepairing religious uildings, and organisations for supportingclergy and for spreading religious doctrine and practice.

nOther purposes beneficial to the community, including

promoting health for example, through educating thepulic aout a particular disease

providing community facilities for example, museums,liraries, halls, otanical gardens, migrant resource centres,neighourhood centres and community radio stations

promoting art and culture through means such as musicand drama

helping to maintain defence and pulic order and providingemergency services

relieving distress due to natural disasters such as cyclones,floods or ushfires

providing social welfare through activities suchas counselling, child care, and family or marriagesupport services

helping people cope with the prolems of unemployment

promoting scientific research

advancing commerce, agriculture and industry throughactivities such as research and resource development

protecting animals

preserving historic uildings.

This list is not exhaustive. Other purposes may e charitalewhere they are intended to provide enefits of social value tothe community or a section of the community.

Institutions and funds whose purposes are not charitaleinclude:

n sporting, recreational and social clus

n organisations run for the profit of their memers

n organisations run for their memers common interests

this includes professional or trade groupsn community service organisations that have a significant

memership purpose, such as traditional service clus

n political parties and loying groups

n commercial or usiness enterprises operated for fundraising

n government departments and instrumentalities carrying outthe ordinary functions of government.

For more information aout charities, refer to Is yourorganisation a charity? (QC 34267).

TYPES OF NON-PROFIT ORGANISATIONSConcessions are availale depending on the type of non-profitorganisation. Non-profit organisation types fall within threeroad categories:

n charities

n income tax exempt funds (ITEFs)

n other non-profit organisations.

Charities consist of charitale funds and charitale institutions.Charitale institutions include pulic enevolent institutions

(bIs) and health promotion charities (HCs).The following diagram shows the relationship etween thetypes of non-profit organisations note: the diagram doesnot represent the relative size or population of each type.

DIAGRAM 1: Types of non-profit organisations

Charitale funds

Charities

Charitale institutions(includes bIs & HCs)

ITEFs

Non-profitorganisations

Other non-profit

organisations

CharitiesThe characteristics of a charity are:

n it is an entity that is also a trust fund or an institution

n it exists for the pulic enefit or the relief of poverty

n its purposes are charitale within the legal sense of that term

n it is non-profitn its sole purpose is charitale.

In rief, purposes are charitale if they are to enefit thecommunity, or a section of it, through the following activities:

nThe relief of poverty, sickness or the needs of the aged,including through pulic enevolent institutions, hospitalsand nursing homes, relief agencies, youth and womensrefuges, drug rehailitation services, disaility services,refugee welfare centres, soup kitchens and organisations thatsupport disadvantaged Indigenous people, or supply furniture,clothing and low-cost housing to the poor.

nThe advancement of education, including through schools,colleges, universities, research and scientific institutes, Scoutsand similar organisations, scholarship trusts, school uildingfunds and parents and citizens associations.

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01 ETTIN STATED


Health promotion charitiesA health promotion charity (HC) is a non-profit charitaleinstitution whose main activity is promoting the preventionor control of diseases in human eings.

Examples of activities that can promote the prevention orcontrol of disease include:

n providing relevant information to sufferers of a disease,health professionals, carers and the pulic

n researching how to detect, prevent or treat diseases

n developing or providing relevant aids and equipmentto sufferers of a disease.

To e a HC, your organisation must e a charity seeCharities on page 5.

For more information aout HCs, refer to Is yourorganisation a health promotion charity? (QC 26552).

Income tax exempt fundsAn income tax exempt fund (ITEF) is a non-charitale fund thatis endorsed y us to e exempt from income tax.

Endorsement as an ITEF is an approval process to accessincome tax exemption. It applies to non-charitale fundsestalished under a will or instrument of trust solely for either:

n the purpose of providing money, property or enefits toincome tax exempt deductile gift recipients (Ds)

n the estalishment of Ds.

The eneficiaries of ITEFs can include Ds that are charitiesand Ds that are not charities.

If a fund can e applied for purposes that are not charitale,it is not a charitale fund.

For more information aout how to ecome an ITEF,refer to The endorsement process for income tax exemptfunds (QC 62731).

Other non-profit organisationsOther non-profit organisations are non-profit organisations thatare not charities or income tax exempt funds.

Other non-profit organisations include sports clus, communityservice groups and recreational clus.

A non-profit organisation is an organisation that is not operating

for the profit or gain of its individual memers, whether thesegains would have een direct or indirect. This applies oth whilethe organisation is operating and when it winds up.

Charitable fundsA charitale fund is a fund estalished under an instrumentof trust or a will for a charitale purpose.

Charitale funds mainly do one or oth of the following:

n manage trust property

n hold trust property to make distriutions to other entitiesor people.

Charitable institutions

A charitale institution is an institution that is estalishedand run solely to advance or promote a charitale purpose.An organisations purposes can e found from its governingdocuments and from its activities, history and control.

A charitale institution may e an organisation estalished ya will or instrument of trust. It may also have the legal structureof an unincorporated association or a corporation. However,incorporation is not enough on its own for an organisation toe a charitale institution what the organisation does is alsorelevant. An organisation estalished, controlled and operatedy family memers and friends would not normally e acharitale institution.

Charitale institutions include pulic enevolent institutionsand health promotion charities.

Public benevolent institutionsA pulic enevolent institution (bI) is a non-profit institutionorganised for the direct relief of poverty, sickness, suffering,distress, misfortune, disaility or helplessness.

The characteristics of a bI are all of the following:

n it is set up for needs that require enevolent relief

n it relieves those needs y directly providing services topeople suffering them

n it is carried on for the pulic enefit

n it is non-profit

n it is an institutionn its dominant purpose is providing enevolent relief.

Some examples of bIs are non-profit organisations that:

n provide hostel accommodation for the homeless

n treat sufferers of disease

n provide home help for the aged and the infirm

n rescue people who are lost or stranded.

To e a bI, your organisation must e a charity seeCharities on page 5.

For more information aout bIs, refer to Is your

organisation a public benevolent institution? (QC 26553).

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01 ETTIN STATED


Entities can include charities, non-profit clus, societiesand associations.

An enterprise includes an activity or series of activitiesperformed y any of the following:

n a charitale institution

n a trustee of a charitale fund

n a religious institution

n a gift deductile entity

n an income tax exempt fund.

Your organisation must have an AbN if it is seekingendorsement as one or more of the following:

n as a tax concession charity or income tax exempt fund

n as a deductile gift recipient.

How does your organisation apply for an ABN?Your organisation can apply for an AbN in any of thefollowing ways:

n electronically through

the Australian business egister at www.abr.gov.au the Australian overnment usiness wesitewww.business.gov.au where you can also manage othergovernment oligations

n on a paper form, availale y phoning us on 13 28 66

n through a tax agent, who will lodge an application using theelectronic lodgment system.

For more information aout AbNs, refer to:

nAustralian business number (ABN) (QC 8782)

nABN registration (QC 57752).

Registering for GST and other taxesIf your organisation needs to register for ST, FbT orAY withholding, it can do so y selecting these optionson the AbN application form.

If your organisation already has an AbN and needs to registerfor ST or other taxes (excluding FbT), you will need tocomplete the formAdd a new business account(NAT 2954).You can otain this form y:

n phoning 13 28 66

n visiting our wesite at www.ato.gov.au

Your organisation can register for FbT using theApplication

to register for fringe benefits tax(QC 8352).

Any profit made y the organisation goes ack into theoperation of the organisation to carry out its purposes and isnot distriuted to any of its memers.

We accept an organisation as non-profit if its constitution orgoverning documents prevent it from distriuting profits orassets for the enefit of particular people oth while it isoperating and when it winds up.

For more information aout non-profit organisations,refer to Is your organisation non-profit? (QC 33732).

REGISTERING YOUR ORGANISATIONTo access various concessions and comply with yourorganisations tax oligations, your organisation may need toregister for an Australian usiness numer (AbN), goods andservices tax (ST), fringe enefits tax (FbT), pay as you go(AY) withholding or other taxes.

What is an ABN?An AbN is a single identifier that non-profit organisations use to:

n register for ST and claim ST creditsn register for AY withholding

n deal with investment odies

n apply to us for endorsement as a deductile gift recipient,tax concession charity or income tax exempt fund

n interact with other government departments, agenciesand authorities

n interact with us on other taxes, such as FbT.

Your organisations AbN registration details ecome part of theAustralian business egister. The pulicly availale informationon this register allows people to find out whether the entitiesthey are dealing with:

n

have an AbNn are registered for ST

n are endorsed charities or income tax exempt funds and/orare endorsed as deductile gift recipients.

Who is entitled to an ABN?To e entitled to an AbN, your organisation must e one ormore of the following:

n a company registered under the Corporations Act 2001

n an entity carrying on an enterprise in Australia

n an entity that, in the course or furtherance of carrying on anenterprise, makes supplies that are connected with Australia

n a government entity

n a non-profit su-entity for ST purposes

n a superannuation fund.

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01 ETTIN STATED


Cancelling your organisations registrationIf your organisations circumstances change, you may needto cancel its registration for one or more taxes.

You will need to complete the formApplication to cancelregistration (NAT 2955) to cancel your organisationsregistration for:

n AbN

n ST

n luxury car tax

n wine equalisation taxn pay as you go withholding

n fuel tax credits.

For more information aout cancelling registration andto otain the application form:

n phone 13 28 66

n visit our wesite at www.ato.gov.au

ENDORSEMENT REQUIREMENTS FOR CHARITIES

AND INCOME TAX EXEMPT FUNDSCharities and income tax exempt funds must e endorsed yus to e exempt from income tax.

Charities also need to e endorsed if they want to accesscharity concessions under the ST and FbT laws.

An organisations endorsement details are recorded on theAustralian business egister at www.abr.business.gov.au

The following information is pulicly availale on the register:

n the organisations entity type charitale fund, charitaleinstitution, pulic enevolent institution, health promotioncharity or income tax exempt fund

n the tax concessions the organisation has een endorsed

to accessn the date of effect for each endorsement.

Applying for endorsementbefore an organisation can apply for endorsement it must havean AbN.

If your organisation does not have an AbN, see How doesyour organisation apply for an AbN? on page 7. If you indicateon the AbN application that your organisation wants to eendorsed as a tax concession charity (TCC) or income taxexempt fund (ITEF), we will post you a TCC/ITEF endorsementapplication pack.

For information aout what taxes your organisationshould register for, see:

n oods and services tax on page 13

n ay as you go withholding on page 21 (for withholdingfrom payments to employees) and page 34(for withholding in usiness transactions)

n Fringe enefits tax on page 22.

Keep your organisations registration detailsup-to-dateYour organisations AbN details are recorded on the Australianbusiness egister and we use them in dealings with yourorganisation. The register includes information such as yourorganisations postal address, and helps us identify yourauthorised contact people. It is important that the informationwe have is accurate and up-to-date.

As many non-profit organisations elect office earers for anannual term, their authorised contact people often changefrom year to year. You need to notify us of any changes to yourorganisations registration details. This helps us to protect your

organisations privacy and provide office earers with accessto the information they need to perform their duties.

We suggest your organisation includes updating the registeras an agenda item in its annual general meeting.

For more information refer to How do I ensure the ATOcan speak to my organisations representative? (NAT 7605).

UbLIC OFFICE

If your organisation is a company or unincorporatedassociation carrying on usiness in Australia, you needto appoint a pulic officer.

You also need a pulic officer if your organisation is derivingincome in Australia from property for example, interest,rent or dividends.

The position of pulic officer must always e filled.Under the law, a change in pulic officer must e notifiedwithin 28 days of your organisation ecoming aware ofthe change.

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01 ETTIN STATED


If your organisation already has an AbN, you can otaina TCC/ITEF endorsement application pack y:

n phoning us on 1300 130 248

n referring to the Endorsement application packs(QC 46645).

Using the form in the application pack you can apply to usto access one or more of the following tax concessions:

n income tax exemption

n ST charity concessionsn FbT reate

n FbT exemption.

For more information refer to:nEndorsement to access charity tax concessions

(QC 13267)

nThe endorsement process for income tax exempt funds(QC 62731).

Endorsement is different to registrationEndorsement provides an organisation with access to

concessions. For example, an organisation that is endorsedto access income tax exemption is exempt from paying incometax, removing the need to lodge income tax returns.

If an organisation is registered for a tax, it is generally a payerof that tax. However, endorsement to access tax concessionscan often reduce the amount payale. For example, a charitythat is endorsed to access the FbT reate is entitled to areate equal to 48% of the gross FbT payale (suject tocapping thresholds).

There will e situations where an organisation is oth endorsedand registered for a tax. For example, a ST endorsed charitythat exceeds the relevant registration turnover threshold must

register for ST.To receive the practical enefit of some charity concessions,a charity must e endorsed and registered for a tax. Forexample, a charity that is endorsed to access ST charityconcessions is entitled to ST credits when it reimursesa volunteer for expenses directly related to the volunteersactivities for the charity. The endorsed charity must alsoe registered for ST to claim these credits.

Tax-deductible giftsbeing endorsed as a TCC or ITEF does not entitle anorganisation to receive tax-deductile gifts.

There is a separate endorsement process for organisationsseeking D status see Fundraising on page 30.

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n Income tax exemption page 10

nTaxale organisations page 10

n

Consolidation page 11n efunds of franking credits page 12

02INCOME TA

INCOME TAX EXEMPTIONWhether a non-profit organisation has to pay income tax willdepend on whether or not the organisation is exempt fromincome tax.

Only certain categories of organisation are exempt fromincome tax. They come from these road groups:

n charities

n community service organisations

n cultural organisations

n educational organisationsn employment organisations

n health organisations

n income tax exempt funds

n religious organisations

n resource development organisations

n scientific organisations

n sporting organisations.

How do you work out if your organisationis exempt?The following organisations must e endorsed y us to e

exempt from income tax:n charities

n income tax exempt funds.

For more information see Charities on page 5 andIncome tax exempt funds on page 6.

For more information aout endorsement requirements,see Endorsement requirements for charities and incometax exempt funds on page 8.

Other organisations can self-assess whether theyare exempt from income tax, see Other non-profit

organisations on page 6.

Charities and income tax exempt fundsThere is a system of endorsement under which the followingorganisations must apply to us to e exempt from income tax:

n charities charities that are endorsed to access income taxexemption are referred to as tax concession charities (TCCs)

n income tax exempt funds (ITEFs).

If we notify you that your organisation is endorsed as exemptfrom income tax all of the following apply:

n it does not need to lodge income tax returns, unlessspecifically asked to do so

n it will need to regularly review whether it is entitledto endorsement

n it must tell us if it ceases to e entitled.

Other non-profit organisationsOrganisations that are not charities or ITEFs can self-assesstheir entitlement to income tax exemption. They do not needto e endorsed y us to e exempt from income tax. Mosthave additional tests and rules that must e met efore theorganisation can e exempt.

If you work out that your organisation meets all the requirementsfor income tax exemption, all of the following applies:

n your organisation will not need to pay income tax, capital

gains tax or lodge income tax returns, unless specificallyasked to do so

n you do not need to get confirmation of this exemption from us

n you should carry out a yearly review to check if yourorganisation is still exempt you should also do this whenthere are major changes to your organisations structureor activities.

For more information aout the requirements forthe exempt categories (including the tests that have toe passed), refer to the Income tax guide for non-profitorganisations (NAT 7967).

If your non-profit organisation is not exempt from income tax,it is taxale.

For more information see the following section,Taxale organisations.

TAXABLE ORGANISATIONSTaxale non-profit organisations are generally treated ascompanies for income tax purposes, whether or not theyare incorporated.

If your organisation is prohiited y the terms of its constituentdocuments from making any distriutions whether in money,property or otherwise to its memers, it is treated as anon-profit company. It will have the enefit of special rulesfor calculating taxale income, lodging income tax returnsand special rates of income tax.

If you are not sure whether your organisation is non-profit,see Is your organisation non-profit? on page 3.

If your organisation does not meet the non-profit requirement,it must lodge an income tax return each year, regardless of itstaxale income. It will have the same rates of tax applied asother taxale companies.

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02 INCOME TA


If your organisation needs to pay AY instalments, we willwrite to you and notify you of an instalment rate. We calculatethe instalment rate from information in your organisations latestincome tax return.

AY instalments are generally paid quarterly, ut someorganisations choose to pay an annual instalment.

Quarterly AY instalments are reported and paid on an activitystatement or instalment notice. Annual instalments are reportedand paid on an annual instalment notice.

Most organisations also have a choice of using either theinstalment amount we have worked out for them or an amountased on their instalment rate multiplied y their currentusiness and investment income.

If your organisation has to pay AY instalments, we will tell youwhich options are availale to you and ask you to choose theoption you want to use.

CONSOLIDATIONWholly-owned corporate groups may have the option ofconsolidating for income tax. Consolidation is optional utcannot e reversed. The consolidated group operates as a

single entity for income tax purposes, lodging a single incometax return and paying a single set of AY instalments.

When a group consolidates, it is a one in, all in situation,in which all of the head companys eligile wholly-ownedsusidiary memers ecome part of the group.

The following entities (which receive special tax treatmentcompared with ordinary Australian-resident companies)cannot e a head company or susidiary memer of aconsolidated group:

n exempt entities that is, total ordinary and statutory incomeis exempt

n pooled development funds

n film licensed investment companiesn certain credit unions.

Other entities specifically excluded from eing a susidiarymemer of a consolidated group are:

n non-profit companies

n trusts that are complying and non-complyingsuperannuation entities

n trusts that are non-complying approved deposit funds.

While a non-profit company can e the head company ofa consolidated group, it cannot e a susidiary memer.

For more information aout consolidation, refer to theConsolidation reference manual(QC 34764).

To work out if your taxale organisation needs to lodgean annual income tax return, refer to Mutuality and taxableincome (NAT 73436), which will help you calculate yourorganisations taxale income, including how to treat mutualdealings with your memers.

Capital gains tax

Capital gains tax (CT) applies to non-profit clus, societiesand associations that are treated as companies for income taxpurposes in the same way as it does for other companies thatpay income tax.

CT is the tax a person or organisation pays on any capital gainit makes and includes in its annual income tax return. Thereis no separate tax on capital gains it is just a component ofincome tax. An organisation is taxed on its net capital gain atthe company tax rate.

For more information aout how to work out yourtaxale organisations net capital gain or net capital loss,

refer to the Guide to capital gains tax(NAT 4151).

Some of the particular CT issues that can affect non-profitorganisations include:

n the sale of assets used in carrying on its activities

n changes to the form of an organisations incorporation

n the amalgamation of organisations

n the availaility of CT concessions, such as the smallusiness concessions.

For more information aout CT, refer to the Othertax issues section in Mutuality and taxable income

(NAT 73436).

Pay as you go instalmentsay as you go (AY) instalments is a system for payingamounts towards the expected tax liaility on your usinessand investment income for the financial year.

Each year, after your organisation has lodged its annual taxreturn, we work out what your organisations total tax liailityis and credit its AY instalments against this amount. We workout the actual tax liaility when we assess your organisationsannual income tax return. Then we credit the AY instalments

for the year against your organisations assessment todetermine whether it owes more tax or whether it is oweda refund.

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02 INCOME TA


REFUNDS OF FRANKING CREDITSFranking credits attached to franked dividends received ythe following organisations may e refundale, provided theeligiility criteria are met:

n entities that are endorsed as exempt from income tax

n deductile gift recipients (Ds)

n developing country relief funds

n exempt institutions that are eligile for a refund under aCommonwealth law other than the income tax law.

Franking credits arise for shareholders when certainAustralian-resident companies pay income tax on their taxaleincome and distriute their after-tax profits y way of frankeddividends. These franked dividends have franking creditsattached. Franked dividends are received either directlyas a shareholder or indirectly as a eneficiary of a trust.

Organisations that receive a dividend from a New Zealandcompany with Australian franking credits attached to it will eale to otain a refund of those credits, if they would have eenale to had the dividend een paid y an Australian company.

New Zealand franking credits cannot e claimed.

If the New Zealand company that paid the dividend has notspecified that the franking credit is Australian, you shouldcontact the company to work out whether the frankingcredit is an Australian or New Zealand franking credit.In most cases, if it is not specified as Australian, it will ea New Zealand franking credit.

To e eligile for a refund of franking credits, a non-profitorganisation must have an AbN, e a resident and satisfy atleast one of the following:

n e a charity endorsed y us to access income tax exemption

n e endorsed y us as an income tax exempt fund

n e endorsed y us as a D in its own rightn e specifically named as a D in the Income Tax

Assessment Act 1997.

ulic funds declared y the Treasurer to e a developingcountry relief fund are also eligile for a refund offranking credits.

For more information aout franking credits, refer toRefund of franking credits Endorsed income tax exemptentities and deductible gift recipients (NAT 6716).

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n What is goods and services tax? page 13

n egistering for STpage 13

n

What does eing registered for ST mean? page 13n What if your organisation is not registered for ST? page 14

n How to cancel your ST registration page 14

n ST concessions page 15

n

ST ranches, groups and non-profit su-entities page 19n rants and sponsorship page 20

If your organisation is not registered for ST, it will need to lookat its ST turnover each month to make sure its ST turnoveris not going to e $150,000 or more. Your organisations STturnover is $150,000 or more if either of the following applies:

n its turnover for the current month and the previous 11 monthsis $150,000 or more and we are not satisfied that itsturnover for the current month and the next 11 monthsis likely to e less than $150,000

n its turnover for the current month and the next 11 monthsis likely to e $150,000 or more.

enerally, if your organisations ST turnover is $150,000or more, it must register for ST within 21 days of the STturnover meeting the $150,000 ST registration threshold.

How to registerTo register for ST your organisation needs to complete anapplication form.

before your organisation can register for ST it must have anAbN. If your organisation does not have an AbN you can applyfor an AbN and register for ST y completingABN registrationfor companies, partnerships, trusts and other organisations(NAT 2939).

If your organisation already has an AbN, it can register for STy completingAdd a new business account(NAT 2954).

For more information aout registering for ST,see egistering your organisation on page 7.

WHAT DOES BEING REGISTERED FOR GST MEAN?If your organisation is registered (or required to e registered) forST, it generally includes ST in the price of most goods andservices and anything else it sells. These sales are called taxale

sales. See Taxale sales on page 14.There are other types of sales where your organisation does notinclude ST in the price. These are called ST-free sales andinput taxed sales. See ST-free sales and Input taxed saleson page 14.

being registered for ST means that your organisation:

n must pay the ST it has collected from its sales to us

n can claim ST credits for any ST included in the price of itsusiness purchases

n must complete an activity statement to report its taxale salesand claim ST credits.

In this chapter when we say:

nGST turnover, we mean the turnover figure you use towork out if you need to e registered for ST

nGST credit, we mean the ST term input tax credit

npayment (made or received), we mean the ST termconsideration

npurchases, we mean the ST term acquisitions

nsales, we mean the ST term supplies.

WHAT IS GOODS AND SERVICES TAX?oods and services tax (ST) is a road-ased tax of 10% onthe sale of most goods, services and anything else consumedin Australia.

ST is a tax on transactions. Where a non-profit organisationis registered (or required to e registered) for ST, the priceof most sales of goods and services and anything else will einclusive of ST. Similarly, the organisation may e entitled toclaim ST credits on the purchases it makes in carrying outits activities.

REGISTERING FOR GSTIf your non-profit organisation has a ST turnover of $150,000or more (or $75,000 for organisations that are not non-profit),it must register for ST.

If your organisation has a ST turnover of less than $150,000,it can choose to register for ST. The decision to voluntarilyregister for ST should e made ased on the administrativeneeds of your organisation.

enerally, an organisation that registers for ST must then stayregistered for at least 12 months, even if its ST turnover is lessthan $150,000.

Calculating your organisations GST turnoverAn organisations ST turnover is its gross income, excludingall of the following:

n ST included in sales

n input taxed sales

n sales not connected with an enterprise that your organisationcarries on

n sales not connected with Australia.

OODS AND SEVICES TA

03

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03 OODS AND SEVICES TA


Collecting and claiming GST on different typesof salesIt is important to understand which type of sales yourorganisation makes ecause this affects whether yourorganisation collects ST on the sale or if it can claimST credits on the purchase see the tale elow.

TABLE 2: Collecting and claiming GST on different types

of sales

Type of saleDo youcollect GST?

Can you claimGST credits?

Taxale Yes Yes

ST-free No Yes

Input taxed No No

WHAT IF YOUR ORGANISATION IS NOTREGISTERED FOR GST?

If your organisation is not registered and is not required to eregistered for ST, ST is not included in the price of its salesand it cannot claim ST credits for the ST included in theprice of purchases it makes in carrying on its activities.

HOW TO CANCEL YOUR GST REGISTRATIONYou may cancel your non-profit organisations ST registrationif your organisation meets all of the following requirements:

n has een registered for at least 12 months

n has a ST turnover of elow $150,000

n has applied for cancellation of the registration.

Under certain circumstances, your organisations STregistration may e cancelled if the registration has een inplace for less than 12 months.

Where your organisation has purchased a usiness asset onwhich you have claimed a ST credit, you may need to repaysome or all the credit on cancellation of your ST registration.

For more information refer to Leaving the GST system(NAT 14829).

To cancel your ST registration, complete theApplicationto cancel registration (NAT 2955).

For more information aout accounting for ST, seeecord keeping, administration and payment on page 33.

For more information aout meeting your ST reportingoligations, refer to GST for small business (NAT 3014).

Taxable salesIf your organisation makes a taxale sale, the price includes

ST. Your organisation makes a taxale sale if it is registered(or required to e registered) for ST and:

n you make the sale for payment

n you make the sale as part of the organisations activities

n the sale is connected with Australia

n the sale is not ST-free or input taxed.

The ST included in the price of a taxale sale is equal to1/11th of the sale price.

Your organisation can claim ST credits for the ST includedin the price of purchases it uses to make a taxale sale.

GST-free salesIf your organisation makes a ST-free sale, it does not includeST in the price. ST-free sales include:

n asic food items such as fruit and vegetales, meat,read and plain milk

n some education, child care and health services

n some exports.

Your organisation can claim ST credits for the ST includedin the price of purchases it uses to make a ST-free sale.

Input taxed salesIf your organisation makes an input taxed sale, it does notinclude ST in the price. Input taxed sales include:

n the sale of residential property (unless it is new)

n leasing of residential property

n financial transactions, such as providing a loan.

Your organisation cannot claim ST credits for the STincluded in the price of purchases it uses to make an inputtaxed sale.

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GST CONCESSIONSThere are a range of ST concessions that are availale tonon-profit organisations. There are additional ST concessionsthat are availale to:

n charitale institutions and charitale funds that are endorsedto access ST charity concessions

n gift deductile entities

n government schools.

For ST purposes, a gift deductile entity is an entity that canreceive tax-deductile gifts or contriutions.

It is important to check the notes to tale 3, as yourorganisation may need to meet certain requirements eforeit can access a concession.

TABLE 3: Available GST concessions

GST concession Eligible entityExplanation ofconcession

Non-profit organisations

Gifts a gift to a non-profit organisation is not considered paymentfor a sale.

n Non-profit organisation See ifts onpage 17.

School tuck shops a non-profit organisation may sell food througha tuck shop or canteen at a primary or secondary school and treatthe sales as input taxed.

n Non-profit organisation See School tuckshops on page 17.

GST registration threshold the registration turnover threshold ishigher for non-profit organisations than for other organisations.

n Non-profit organisation See ST registrationthreshold on page 17.

GST groups the requirement to satisfy the 90% ownership test iswaived where the entity is a non-profit organisation and all the othermemers of the ST group or proposed ST group are non-profitorganisations and memers of the same non-profit association.

n Non-profit organisation See ST groupson page 19.

Charities, gift deductible entities and government schools

Raffles and bingo tickets to raffles and ingo sold y an eligileentity are ST-free provided the holding of the raffle or ingo eventdoes not contravene a state or territory law.

n Charitale institution1

n Charitale fund1

n ift deductile entity2

n overnment school

See affles andingo on page 17.

Fundraising events an eligile entity may choose to treat all salesit makes in connection with certain fundraising events as input taxed.


n Charitale fund1


n overnment school

See Fundraisingevents on page 17.

Noncommercial activities where an eligile entity makes salesand the payment it receives in return for the things it sold is less thana certain amount, the sales are ST-free.


n Charitale fund1


n overnment school

See Non-commercialactivities on page 18.

Accounting on a cash basis an eligile entity may choose toaccount on a cash asis regardless of its ST turnover.


n Charitale fund1


n overnment school

See Accountingon a cash asison page 18.

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TABLE 3: Available GST concessions continued

GST concession Eligible entityExplanation ofconcession

Charities, gift deductible entities and government schools continued

Reimbursement of volunteer expenses an eligile entity canclaim ST credits for reimursements made to volunteers forexpenses the volunteer incurs that are directly related to their

activities as a volunteer of the entity.


n Charitale fund1


n overnment school

See eimursementof volunteer expenseson page 18.

Gifts and GST credit adjustments adjustments of ST credits arenot required when an item acquired y a usiness is susequentlygifted to an eligile non-profit entity.


n Charitale fund1


See ifts and STcredit adjustmentson page 18.

Donated secondhand goods sales of donated second-handgoods y an eligile entity are ST-free.


n Charitale fund1


n overnment school

See Donatedsecond-hand goodson page 18.

Nonprofit subentities an eligile entity may conduct some of itsactivities through a non-profit su-entity.

n Income tax exemptnon-profit organisation


n Charitale fund1


n overnment school

See Non-profitsu-entities

on page 19.

GST religious groups some charities can e approved as a STreligious group. Transactions etween memers of the group areexcluded from ST.

n Income tax exempt charity See ST religiousgroups on page 19.

Charitable retirement villages an eligile non-profit entity mayprovide ST-free accommodation, accommodation-related servicesand meals to residents of such retirement villages.


n Charitale fund1

See Charitaleretirement villageson page 19.

NOTES TO TABLE 3

Endorsement requirements for charities

1 If a charity wants to access this concession, it must e endorsed y us to access ST charity concessions.

Where an organisation qualifies for a ST concession as oth a charity and another type of entity, for example a gift deductile entity, it mayaccess the concession only if the organisation is endorsed to access the ST charity concessions.

For more information see Endorsement requirements for charities and income tax exempt funds on page 8.

Gift deductible entities

2 A gift deductile entity that operates a fund, authority or institution which can receive tax-deductile gifts or contriutions can only apply thisconcession to the activities of the endorsed fund, authority or institution, and not to any other activities of the gift deductile entity.

3 A gift deductile entity that operates a fund, authority or institution which can receive tax-deductile gifts or contriutions is only entitled toaccount for ST on a cash asis if it meets one of the general eligiility criteria, either: the entitys ST turnover does not exceed the cash accounting turnover threshold the entity correctly accounts for income using the receipts method for income tax purposes.

4 If a donor makes a gift to a gift deductile entity that operates a fund, authority or institution which can receive tax-deductile gifts orcontriutions, the donor will not have to make an adjustment to their ST credit if the gift is made for the principal purpose of the endorsedfund, authority or institution.

5 Only a gift deductile entity that is a non-profit ody is ale to choose to treat separately identifiale ranches as non-profit su-entity.

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GST registration thresholdThe ST registration threshold for a non-profit organisationis $150,000. This means your non-profit organisation is notrequired to e registered for ST unless the ST turnoverof your organisation is $150,000 or more.

You may still choose to register your organisation for STif its ST turnover is less than $150,000. The decision tovoluntarily register for ST is one that should e ased on theadministrative needs of your organisation. Some organisations

may choose not to register for ST ecause they consider theST reporting requirements to e a greater urden than theenefit they would receive, for example, access to ST credits.

Raffles and bingoA raffle is a game of chance where the prizes are either goodsor cash, or a comination of the two.

The sale of tickets in a raffle and the acceptance of a personsparticipation in a game of ingo y a charitale institution,charitale fund, gift deductile entity (see note 2 on page 16)or government school are ST-free provided they do notcontravene state or territory law.

Fundraising eventsA charitale institution, charitale fund, gift deductile entity(see note 2 on page 16) or government school may chooseto treat certain fundraising events as input taxed.

If an organisation chooses to treat a fundraising event as aninput taxed fundraising event, it will have to treat all sales itmakes in connection with the event as input taxed. The choicemust e made efore any sales take place.

The organisation will not e entitled to claim ST credits for anypurchases for the event and it will not e required to chargeST on the sales it makes. The organisation will not e entitledto claim ST credits regardless of whether the supply would

have een ST-free had it not made the election.roceeds from input taxed fundraising events do not form partof an organisations ST turnover. Therefore, if an organisationchooses to treat all sales in connection with certain fundraisingevents as input taxed, it does not need to register for STprovided its ST turnover is less than $150,000.

There are certain conditions that must e met in orderto apply this concession. For more information refer toFundraising (NAT 13095).

For more information aout a ST concession,refer to the Charities consultative committee resolvedissues document(QC 16250) unless directed toanother pulication.

GiftsA gift made to a non-profit organisation is not considered

payment for a sale and is not suject to ST. The value of a giftis also excluded when calculating the non-profit organisationsST turnover.

For a payment to e considered a gift it must e madevoluntarily and the payer cannot receive a material enefitin return:

n A payment is not voluntary when there is an oligationto make the payment or the non-profit organisation iscontractually oliged to use the payment in a specific way.

n A enefit is not a material enefit if it is an item of insustantialvalue that cannot e put to a use or is not marketale, suchas a pin or a rion. An item of greater value, such as a ticketto a dinner, or an item that has a use or function, such as a

pen or a ook, is a material enefit.

For more information refer to Fundraising (NAT 13095).

School tuck shopsIf a non-profit organisation (for example, a parents and citizensassociation) operates a school tuck shop on the grounds of aprimary or secondary school, it can choose to treat all sales offood through the tuck shop as input taxed.

This means that the organisation does not charge ST on itssales, and does not claim ST credits for its purchases.

As input taxed sales are not included when calculating theST turnover for ST registration purposes, choosing to treatall sales of food as input taxed may mean that the organisationdoes not have to register for ST.


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Reimbursement of volunteer expensesWhere a charitale institution, charitale fund, gift deductileentity (see note 2 on page 16) or government school reimursesan individual person for an expense they have incurred thatis directly related to their activities as a volunteer of thatorganisation, the organisation can claim a ST credit forthe ST included in the price of the item purchased if theorganisation is registered for ST.

A payment is a reimursement where the recipient is

compensated exactly (meaning precisely, not approximately),whether wholly or partly, for an expense already incurredalthough not necessarily disursed.

To enale the charity, gift deductile entity or governmentschool to claim the ST credit, the volunteer must providethe organisation with the tax invoice for the purchase theyhave made.

For more information refer to Volunteers and tax(NAT 4612).

Gifts and GST credit adjustmentsenerally, an organisation can claim ST credits on purchasesmade for its usiness activities. However, if the organisationhas claimed a ST credit and does not use that purchaseas part of its usiness activities, it must repay the ST creditpreviously claimed.

If an organisation donates to a charitale institution, charitalefund or gift deductile entity (see note 4 on page 16) apurchase for which it has previously claimed a ST credit, it isnot required to repay to us the ST credit previously claimedin respect of that purchase.

Donated second-hand goodsA sale of donated second-hand goods y a charitaleinstitution, charitale fund, gift deductile entity (see note 2 onpage 16) or government school is generally ST-free providedthere is no change in the original character of the goods.


Non-commercial activitiesThe commercial activities of a charitale institution, charitalefund, gift deductile entity (see note 2 on page 16) orgovernment school are taxale ut the non-commercialactivities of these organisations can e ST-free.

This means that, if it is registered for ST, the charitaleinstitution, charitale fund, gift deductile entity or governmentschool does not pay ST on the payment it receives for itsnon-commercial sales, and it can claim ST credits for the ST

included in the price of purchases it uses to make these sales.The term non-commercial activities refers to sales madewhen the payment received for the sale is less than a specifiedamount. The sale is ST-free if the amount charged is either ofthe following:

n less than 50% of the ST-inclusive market value

n less than 75% of the amount the charitale institution,charitale fund, gift deductile entity or government schoolpaid to purchase the item that is susequently sold.

When the sale is a supply of accommodation y a charitaleinstitution, charitale fund, gift deductile entity or governmentschool, the sale is ST-free if the amount charged is either ofthe following:

n less than 75% of the ST-inclusive market value of theaccommodation

n less than 75% of the cost of providing the accommodation.

Accounting on a cash basisOrganisations that account for ST use either a cash ornon-cash (accruals) method of accounting.

Organisations may choose to account for ST on a cash asisif their ST turnover does not exceed the cash accountingturnover threshold.

A charitale institution, charitale fund, gift deductile entityor government school is entitled to use the cash asis ofaccounting regardless of turnover (except where the giftdeductile entity operates a fund, authority or institution whichcan receive tax-deductile gifts or contriutions see note 3on page 16).

For more information refer to Cash and non cashaccounting (NAT 3136).

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One of the group memers manages the affairs of the groupand is responsile for accounting for the ST transactionsof the whole group. This group memer is known as therepresentative memer. However, each group memer muste individually registered for ST to form part of a ST group.

When ST group memers make sales outside the group, therepresentative memer is responsile for accounting for STon the sales.

Similarly when ST group memers make purchases from

outside the group, the representative memer claims theST credits on the purchases on ehalf of the group.

For more information refer to GST groups (QC 13189).

To register a ST group complete the GST group notification of forming, changing or cancelling(NAT 2952) form.

GST religious groupsCharities that are endorsed y us to access income taxexemption and which elong to the same religious organisationcan form a ST religious group, provided they meetcertain requirements.

This means no ST is payale and no credits can e claimedon transactions etween group memers. However, eachmemer of the ST religious group must e individuallyregistered for ST and account for all its transactions withparties outside of the ST group y lodging individualactivity statements.

Non-profit sub-entitiesCertain organisations may choose to have some (or all) of theirseparately identifiale ranches or units treated as separate

entities for ST purposes. The separate units are callednon-profit su-entities.

Organisations eligile for this concession are:

n charitale institutions see note 1 on page 16

n charitale funds see note 1 on page 16

n gift deductile entities see note 5 on page 16

n government schools

n other non-profit organisations that are income tax exempt.

To e ale to use this option, the main organisation must eregistered for ST and remain registered.

A non-profit su-entity is a separate entity for ST purposesonly. Other oligations like AY, FbT and income tax are notaffected y this arrangement.

Charitable retirement villagesCertain supplies made y a charitale institution or charitalefund that operates a retirement village may e ST-free. Thosesupplies must e made y the charity to a resident of theretirement village. Accordingly, supplies made y the charityto visitors or staff of the retirement village would not qualify forST-free treatment unless they are non-commercial activitiesof the charity.

The range of supplies to a resident of a charitale retirement

village, which ST-free treatment applies to, includes the supplyof accommodation in the retirement village, and services relatedto the supply of accommodation and meals. This would include,for example, the supply of accommodation in an independentliving unit or serviced apartment, property maintenance fees,gardening services and meals and everages.

GST BRANCHES, GROUPS AND NON-PROFITSUB-ENTITIESThere are a numer of options availale to non-profitorganisations on how they structure their organisation forST purposes.

GST branchesA ST registered organisation that operates through a ranchstructure may choose to register a ranch (or ranches)separately for ST, provided the organisation meetscertain requirements.

This means the ranch will e liale for ST on its sales andwill e entitled to a credit for the ST in the price of goodsand services it uys in carrying on the activities of the ranch.Transactions etween the ranch and the parent entity, andetween ranches, will e suject to ST.

To register a ST ranch, complete theApplication to

register a GST or PAYG withholding branch (NAT 14834).

GST groupsCertain organisations can form a ST group if they satisfy the90% ownership test. The ownership test requires that eachgroup memer share sustantially the same (at least 90%)ownership. The 90% ownership requirement for a ST groupdoes not apply to non-profit organisations.

Non-profit organisations that are memers of the samenon-profit association may find it useful to form a ST group ifthey regularly make sales and purchases etween each other.

A ST group is treated as a single entity for ST purposes.This means no ST is payale and no ST credits can eclaimed on transactions etween group memers.

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GRANTS AND SPONSORSHIP

Grant fundingOften organisations secure funding from government odies,foundations and private purpose funds.

If your organisation is registered (or required to e registered)for ST, it may have to pay ST on the funding payment itreceives if it makes a supply in return for that funding.

The organisation is not required to pay ST on a funding

payment if it does not make a supply in return for the funding.

SponsorshipUnder a sponsorship arrangement, when an organisationundertakes a fundraising activity it often receives support inthe form of money. In return, it may provide such things asadvertising, signage or naming rights, or some other typeof enefit of value.

This means that the sponsor receives something of value inreturn for the sponsorship, so the sponsorship payment is nota gift. If the organisation is registered for ST, it has to payST on the sponsorship payments it receives.

For more information aout grants funding andsponsorship, refer to Fundraising (NAT 13095).

For more information aout meeting your SToligations, refer to GST tips for non-profit organisations(QC 00161180).

A unit will e considered to e independent if it:

n maintains an independent system of accounting

n can e separately identified from the main organisation yits location or y its activities.

For example, a unit could e a separately located ranch of anorganisation or a fundraising activity, such as a fete, lamingtondrive or fundraising dinner. If you choose to treat a unit ofyour organisation as a non-profit su-entity, you must makea note in your records, such as your accounts or the minutes

of a meeting, that the unit is to e treated as a separate entityfor ST purposes.

A unit cannot e a non-profit su-entity if its activities arerelated to the main purpose of the organisation. For example,an organisation cannot treat its memership activities as theactivities of a non-profit su-entity.

Where the units ST turnover is less than $150,000, the unitcan choose whether or not it registers for ST. Where theunit has a ST turnover of $150,000 or more, it must registerseparately for ST and will have the same rights and oligationsas other ST registered entities. The ST oligations of the unitwill e imposed on the people responsile for the managementof the unit.

Once the organisation makes a choice to treat a unit as anon-profit su-entity, it cannot revoke that choice for 12 months.The organisation cannot make a further choice to treat the unitas a non-profit su-entity within 12 months after the previouschoice was revoked.

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n Employees, independent contractors and volunteers page 21n ay as you go withholding page 21n Fringe enefits tax page 22n Salary sacrifice arrangements page 26n Superannuation guarantee page 26

n Employment termination payments page 27n Higher education dets page 27n Employees and child support page 28n Independent contractors and tax page 28nVolunteers and tax page 28

For more information aout the tax treatment of:

n independent contractors see Independent contractorsand tax on page 28

n volunteers see Volunteers and tax on page 28.

PAY AS YOU GO WITHHOLDINGIf your organisation has employees, you must withhold amounts

from their pay and send the withheld amounts to us. Thisprocess is called withholding and is done through the pay asyou go (AY) withholding system.

You must register your organisation with us when you arerequired to withhold from payments to your employees.

The amount to e withheld from an employees pay dependson the amount they are paid and the information an employeehas provided in either or oth of the following:

nTax file number declaration (NAT 3092)

nWithholding declaration (NAT 3093).

We pulish tax tales that list the amounts to withhold fromweekly, fortnightly and monthly pays.

If your organisation is a small organisation, you report and paythe withheld amounts to us quarterly when you lodge yourorganisations activity statements.

You must also:

n give each employee an annual payment summary of theamount withheld from them during the year

n provide an annual report to us aout withheld amounts.

Directors are treated similarly to employees for AYwithholding purposes.

What are your organisations obligations for other

PAYG withholding payments?The most common circumstances that could arise where anorganisation may have AY withholding oligations other thanfor employees would e:

n payments under AY voluntary agreements

n payments where no AbN is quoted on an invoice.

The rates of withholding depend on the type of payment.For example, the no AbN quoted withholding rate is currently46.5% (the top marginal rate plus the Medicare levy) while therate to e used for a AY voluntary agreement is either a flatrate of 20%, or the payees AY instalment rate.

You should check with us what rates apply to other payments.

A payment summary must also e issued to individuals andentities (who are not employees) showing amounts that haveeen withheld under other types of AY withholding.

EMPLOYEES, INDEPENDENT CONTRACTORSAND VOLUNTEERSIt is important to determine whether an individual is anemployee, independent contractor or volunteer of anorganisation, as this status may affect the tax treatment oftransactions etween the individual and the organisation.

Meaning of employeeenerally, an individual is considered to e an employee if theymeet the following requirements:

n are paid for time worked

n receive paid leave for example, sick, annual, recreationor long service leave

n are not responsile for providing the materials or equipmentneeded to do their jo

n must perform the duties of their position

n agree to provide their personal services

n work hours set y an agreement or award

n are recognised as part and parcel of the payers usiness

n do not take commercial risks and cannot make a profit or lossfrom the work performed.

Meaning of independent contractorAn independent contractor is an entity (such as an individual,partnership, trust or company) that agrees to produce adesignated result for an agreed price. In most cases anindependent contractor meets the following requirements:

n is paid for results achieved

n provides all or most of the necessary materials and equipmentto complete the work

n is free to delegate work to other entities

n has freedom in the way the work is done

n provides services to the general pulic and other usinesses

n is free to accept or refuse work

n is in a position to make a profit or loss.

For more information aout determining if workersare employees or contractors, refer to How to determineif workers are employees or independent contractors(NAT 2780).

Meaning of volunteerThere is no legal definition of volunteer for tax purposes.A dictionary definition of a volunteer is someone who entersinto any service of their own free will, or who offers to perform

a service or undertaking.

EMLOYEES AND OTHE WOKES

04

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04 EMLOYEES AND OTHE WOKES


You send these amounts to us quarterly or monthly, dependingon your organisations withholding status small or mediumwithholder. If your organisation is a large withholder, you haveto send amounts more frequently.

At the end of the year you must sumit an annual report to usthat reconciles all withholding payments your organisation hasmade to us during the financial year.

FRINGE BENEFITS TAX

What is FBT?Fringe enefits tax (FbT) is a tax payale y employers whoprovide fringe enefits to their employees or to associates oftheir employees. This is the case whether or not the employeris the actual supplier of the enefit for example, where theenefit is provided y an associate, or under an arrangementwith a third party.

If your organisation provides a fringe enefit to its employeesor to associates of its employees (typically family memers),your organisation may have an FbT liaility. This is separatefrom income tax and is calculated on the taxale value of thefringe enefits provided. Even if your organisation is exempt

from income tax, it may still have to pay FbT. However, certainFbT concessions can reduce your organisations liaility.

What is a fringe benefit?A fringe enefit is a payment to an employee, ut in a differentform to salary or wages. benefits may include rights, privilegesor services. For example, a fringe enefit may e provided whenan employer:

n allows an employee to use a work car for private purposes

n gives an employee a cheap loan

n pays an employees private health insurance costs.

Some employers, including charities, will need to distinguishetween employees, volunteers and independent contractors.For the purposes of FbT, an employee is a person who receives(or is entitled to receive) salary or wages, or a enefit that haseen provided in respect of their employment. A volunteer isnot paid for work. eimursing a volunteer for out-of-pocketexpenses does not cause them to ecome an employee.enerally, enefits provided to volunteers do not attract FbT.

If an organisation provides non-cash enefits to workers in lieuof salary or wages, FbT can apply.

For more information aout FbT refer to:

nFringe benefits tax a guide for employers (QC 418)

n

Volunteers and tax(NAT 4612).

For more information aout AY withholding foremployees, refer to Pay as you go withholding what youneed to know(QC 16857).

The following pulications are availale from us y phoning13 28 66 and are free from most newsagents:

nWeekly tax table (NAT 1005)

nFortnightly tax table (NAT 1006)

nMonthly tax table (NAT 1007)

nWithholding declaration (NAT 3093)nTax file number declaration (NAT 3092).

To calculate tax rates electronically, use our Tax withheldcalculator(QC 33268).

For more information aout no AbN quoted withholding,see Withholding in usiness transactions on page 34.

Are any organisations exempt fromPAYG withholding?No. Withholding oligations are determined y the nature of thepayments. Organisations that are exempt from income tax arenot exempt from AY withholding oligations.

Registering for PAYG withholdingIf your organisation pays salaries or wages, or makes anyother payments that are suject to AY withholding, yourorganisation will need to register.

Your organisation can register for AY withholding y eithercompleting an electronic or printed form, or y contacting us.

If you are applying for an AbN for your organisation, you canuse the same form to register for AY withholding.

To register for AY withholding:n phone 13 28 66

n refer toAdd a new business account(NAT 2954).

If your organisation makes a payment that is suject toAY withholding, you must withhold the required amountfrom the payment and send this to us y the due date.The amount withheld will e reported on your organisationsactivity statement along with any ST, AY instalments orFbT amounts. Any credits your organisation is entitled to(such as ST credits) will e offset against any amount ofAY withholding and other tax liailities you must report

on your organisations activity statement.

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What is grossing up?rossing up means increasing the taxale value of a enefitto reflect the gross salary an employee would have to earnat the highest marginal tax rate, including the Medicare levy,to purchase the enefit using after-tax dollars.

There are two separate gross-up rates:

nA higher (type 1) grossup rate of 2.0647 this rate is usedwhere the enefit provider is entitled to a ST credit for theprovision of a enefit.

nA lower (type 2) grossup rate of 1.8692 this rate is usedif the enefit provider is not entitled to ST credits.

Always use the lower (type 2) gross-up rate forreporting on employees payment summaries.

Reportable fringe benefitsYou must keep records that show the taxale value of certainfringe enefits provided to your organisations employees,regardless of your organisation type.

If the total taxale value of reportale fringe enefits you provide

to an employee in an FbT year (1 April to 31 March) is morethan $2,000, you must record the grossed-up taxale value ofthose enefits on your employees payment summary for thecorresponding income year (1 July to 30 June).

This requirement applies even if your organisation is not lialeto pay FbT.

benefits that are exempt from FbT may still need to e reportedon payment summaries.

The notional taxale value of a enefit must e al located to therelevant employee where a enefit is exempt from FbT due toone or oth of the following:

n capping thresholds that apply to pulic enevolentinstitutions, health promotion charities, hospitals and pulicamulance services

n concessions that apply to religious institutions and non-profitcompanies in relation to live-in residential care workers.

While the aove employers must report these amounts onpayment summaries where they exceed the reporting threshold,the enefits will continue to e exempt from FbT.

The reportale fringe enefits amount shown on the paymentsummary is not included in the employees assessale income.However, it is included in a numer of income tests for certaingovernment enefits and oligations.

For more information aout reportale fringe enefits,refer to Reportable fringe benefits (QC 52011).

Common fringe benefitsOne of the most common fringe enefits is a car, whichgenerally ecomes a fringe enefit when it is owned or leasedy an employer and made availale for the private use of anemployee. If the employers car is garaged at an employeeshouse, it is treated as having een made availale forprivate use.

Other common fringe enefits include:

n expense payments

n loansn meals/entertainment

n housing.

Common exempt benefitsA numer of enefits are exempt from FbT. These include:

n some taxi travel

n in-house health care facilities

n most minor enefits where the value of the enefit is lessthan $300 and it would e unreasonale to treat it as afringe enefit.

Registering for FBTWe recommend you register your organisation once you haveestalished that it has to pay FbT.

Your organisation can register for FbT using theApplication to register for fringe benefits tax(NAT 1055).

Your FbT numer will e the same as your tax file numer.

FBT returns and paymentsEmployers must assess their own liaility for FbT annually.A return covering the FbT year from 1 April to 31 March

should e lodged y 21 May, or the first usiness day afterthis date.

If your organisation has not previously paid FbT, or if the amountof FbT it had to pay for the previous year was less than $3,000,it is required to pay the tax once a year when it lodges its annualFbT return.

If your organisation had to pay FbT of $3,000 or more for theprevious year, it must pay the tax quarterly with its activitystatement in the susequent year. A alancing payment (ifany) should e made when it lodges its FbT return y 21 May(or the first usiness day after), unless other arrangementshave een made with us.

To calculate a fringe enefits tax liaili ty, the taxale valueof fringe enefits provided must e grossed-up.

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TABLE 4: Types of organisations eligible forFBT exemption

Types of organisationseligible for FBTexemption1

Cappingthreshold2

Does theorganisation needto be endorsedby us to accessFBT exemption?3

ulic enevolentinstitutions (other thanhospitals) see page 6for an explanation ofa ulic enevolentinstitution

$30,000 peremployee Yes

Health promotioncharities see page 6for an explanation ofa Health promotioncharity

$30,000 peremployee

Yes

ulic and non-profit

hospitals

$17,000 per

employee

No

ulic amulanceservices

$17,000 peremployee

No

NOTES TO TABLE 4

1 A range of enefits are exempt from FbT. They includecertain enefits provided y religious institutions andnon-profit companies.

For more information see eligious institutions andNon-profit companies and live-in residential carers onpage 25.

2 The $30,000 capping threshold applies even if the pulic

enevolent institution (bI) or health promotion charity did notemploy the employee for the full FbT year. For example, if youemployed the employee etween Octoer and March andthe total grossed-up value of enefits provided was $25,000,FbT will not e payale.

If an organisation is a bI and a hospital, the $17,000 cappingthreshold applies. The organisation cannot choose the bIexemption cap.

3For more information see Endorsement requirements for

charities and income tax exempt funds on page 8.

It is important to check the notes to tale 4, as yourorganisation may need to meet certain requirements eforeit can access a concession.

FBT concessionsFew tax concessions apply to all organisations in thenon-profit sector they tend to apply to particular typesof non-profit organisations.

The following sections discuss FbT concessions and thetypes of non-profit organisations that can access them.These sections cover:

n FbT exemption

n FbT reate

n certain enefits provided y religious institutions andnon-profit companies.

FBT exemptionFbT exemption is an exemption from paying FbT.

If your organisation is eligile for FbT exemption, enefits itprovides its employees are exempt from FbT where the totalgrossed-up value of certain enefits for each employee duringthe FbT year is equal to, or less than, the capping threshold.If the total grossed-up value of fringe enefits provided to anemployee is more than the capping threshold, your organisationwill need to pay FbT on the excess.

Tale 4 outlines the types of organisations that are eligile forFbT exemption, the capping thresholds that apply and whetherthe organisation needs to e endorsed y us to access FbTexemption.

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Religious institutionseligious institutions are eligile for the FbT reate sujectto a capping threshold of $30,000. If a religious institutionis a charity it must e endorsed y us to access the FbTreate. If a religious institution is not a charity it can self assessits entitlement.

For more information see FbT reate on this page.

eligious institutions may also e eligile for FbT concessionsfor enefits they provide to:

n religious practitioners

n live-in carers

n domestic employees.

Religious institutions and religious practitionersSuject to certain requirements, enefits provided y religiousinstitutions to religious practitioners are FbT exempt if theyare mainly for the practitioners pastoral duties, or other dutiesrelated to the practice, study, teaching or propagation ofreligious eliefs.

Religious institutions and livein residential carersIf a religious institutions activities include caring for elderlyor disadvantaged people, certain enefits it provides to itsemployees are exempt from FbT.

The exemption is for live-in carers where the carer resideswith the elderly or disadvantaged person in residentialaccommodation you provide. The enefits that may e exemptinclude the employees live-in accommodation, residential fuel,meals or other food and drink.

Religious institutions and domestic employeesbenefits religious institutions provide to live-in and non-live-indomestic employees are FbT exempt in certain circumstances.

For a live-in employee, the employees duties must mainlyinvolve domestic or personal services for religious practitionersand the practitioners relatives residing with them. Theenefits that may e exempt include the employees live-inaccommodation, residential fuel, meals or other food and drink.

For a non-live-in employee, the employees duties must alsomainly involve domestic services for religious practitioners andthe practitioners relatives residing with them. The exemptenefits are limited to food and drink consumed y theemployee while carrying out employment-related duties.

FBT rebateThe FbT reate is an entitlement to a reate equal to 48% of thegross FbT payale, suject to a capping threshold.

Organisations that qualify for an FbT reate are referred to asreatale employers.

eatale employers are entitled to have their liaility reducedy a reate equal to 48% of the gross FbT payale (suject toa $30,000 capping threshold). If the total grossed-up taxalevalue of fringe enefits provided to an employee is more than

$30,000 a reate cannot e claimed for the FbT liaility onthe excess amount. The $30,000 capping threshold applieseven if the reatale employer did not employ the employee forthe full FbT year. For example, if the total grossed-up value ofenefits provided to an employee etween Octoer and Marchwas $15,000, a reate applies to all of the FbT payale forproviding these enefits.

Charities must e endorsed y us to access the FbT reate.

For more information see Endorsement requirementsfor charities and income tax exempt funds on page 8.

Other non-profit organisations can self-assess their entitlement.

eatale employers are certain non-government, non-profitorganisations. Organisations that qualify f

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