Even though profit isn’t the focus, some nonprofit activities can leave them subject to taxes. Tax bills can be quite costly and take away from monies that could go towards funding operations and services. Since nonprofit activities provide so many benefits to their communities, many governmental and regulatory bodies offer reductions, or concessions, on any taxes that would be due.

Tax concessions are items that are treated favourably for tax purposes by the Australian Tax Office (ATO). Many nonprofits will qualify for one or more tax concessions, but, not all of them. Your nonprofit’s designation will determine which, if any, tax concessions, you will qualify to use.

Types of Tax Concessions

Currently, there are seven types of concessions that organisations in the not-for-profit sector may qualify to use. These concessions include the income tax exemption, the Fringe Benefits Tax (FBT) exemption, which is always subject to a capping threshold, the FBT rebate, two types of Goods and Services Tax (GST) concessions, the Deductible Gift Recipients (DGR) endorsement and Refunds of franking credits.

Determining a Nonprofit’s Designation

Your nonprofit’s ATO designation is determined by its type. There are two main types of nonprofits: charities and other nonprofits. Your nonprofit’s formal, governing documents can help you assess your classification for tax purposes.

Some common examples of governing documents include your deed of trust, book of rules, articles of association or your constitution. These documents should declare the general purpose of your organisation and its character. The documents should provide details on how your NFP is governed and what processes are used to make decisions.

Your nonprofit should also have controls in place that prevent it from distributing any of its assets or property to its members or other private individuals. Your governing documents should also spell out that your organisation will not allocate money, property or other assets to specific people as it operates, when it winds down or otherwise dissolves. Dissolution and not-for-profit clauses are examples of statements typically included in the governing documents to ensure that no one privately benefits from an NFP.

Organisations that meet the above requirements can typically receive an ATO designation of an NFP, or other nonprofit. Qualifying as a charity means meeting more restrictions and guidelines, as these types of NFPs usually qualify for more concessions.

Are You a Charity for ATO Purposes?

ATO designated charities are NFPs that exist for a charitable purpose and for the public good. Some common charities are universities, homeless shelters, cultural groups, religious groups, organisations that provide nonprofit care for the disabled, and many more. Some nonprofits that do not usually qualify as a charity include sports clubs and associations, business associations and most service organisations.

To qualify as a charity for ATO purposes, your organisation must also be registered with the Australian Charities and Not-for-Profits Commission (ACNC), have an Australian Business Number (ABN), and meet any specific requirements of each tax concession. For example, only certain types of charities and other nonprofits will qualify for DGR endorsement. ATO designated charities qualify for GST concessions, but Other NFPs that wish to qualify for GST concessions must also qualify for the DGR endorsement.

Are You Registered?

Registering your charity with the ACNC is a fairly straightforward process. In addition to qualifying for a host of tax concessions, ACNC registered charities often receive additional tax benefits, and are exempt from some Commonwealth laws. To find out more about how to register and apply for tax concessions, visit the ACNC website.