Just because your organisation is operating as a nonprofit, doesn’t mean that you aren’t subject to taxes. The goods and services tax (GST) for example, is a type of tax that nonprofits are required to calculate and report once they turn over $150,000 or more in transactions. If your NFP is registered with the ATO, it’s very likely that you will be able to qualify for some form of GST credit, or other favourable treatment on your taxes, known as a concession.

Eligibility for Concessions Determined by ATO Designation

Currently, there are seven major types of concessions. Whether your charity or other NFP is entitled to claim them depends on several factors.

In general, NFPs must be registered with the ATO to claim a concession. The size of your organisation and its main purpose can also affect your ATO designation and the number and types of concessions you may use. You can learn more about determining your ATO designation in our earlier article, “Tax Concessions and ATO Designations.”

Understanding the Major Tax Concessions

The following overview highlights some of the features associated with the major concessions that charities and other nonprofits may be entitled to use when calculating their various tax liabilities. The responsibility of calculating and lodging your NFP’s tax reports on time lies with the treasurer.

Is your NFP Exempt from Paying Income Tax?

Determining whether your organisation is exempt from paying income tax is not always a straightforward process. Charities that are ACNC registered and endorsed by the ATO as tax-exempt, automatically qualify. Other nonprofits that are not organised as a charity may conduct a self-assessment to determine if they are exempt from paying income tax.

Qualifying entities typically serve a purpose in one of the following areas: community service, culture, health, employment, science, resource development or sports. They must also comply with their governing rules, use their income and assets in support of their mission, and pass at least one of the ATO’s three tests. To learn more about how to assess your nonprofit for income tax exemption, check out the ATO’s guidance on Requirements for Self-Assessing Entities.  

FBT Exemption and FBT Rebate

FBT Taxes are assessed on the value of fringe benefits that you provide to your employees.  There are instances where your organisation might not be liable for paying taxes on income in a given year, but will still be required to pay FBT taxes, so being exempt from income taxes does not remove the NFP’s liability for FBT. When determining your FBT taxes, it’s important to keep in mind that you are not required to pay taxes on the fringe benefits you provide to an independent contractor, just your employees.

Two concessions can reduce the amount of FBT that your NFP owes, the FBT Exemption and the FBT Rebate. The FBT exemption limits the amount of tax that you owe by levying taxes only on the amount of fringe benefits that exceeds a certain threshold or capping limit, which can vary between $17,000 and $30,000 per employee, depending on your NFP’s ATO designation.

FBT Rebates can reduce the percentage of FBT tax that your NFP owes. Depending on your NFP’s ATO designation and mission, your nonprofit may qualify for a reduction of 47% to 49% of the gross FBT Payable Amount that is owed.

GST Concessions

There are two major types of GST Concessions that charities and other nonprofits may be entitled to use to reduce their tax burden.  Endorsed charities and gift-deductible entities typically qualify for one or more of these concessions. Visit the ATO’s website to learn more about the various GST Concessions your charity or other NFP may be qualified to use.

DGR Endorsement

Registered charities and other nonprofits may qualify for DGR endorsement, which allows donors to be able to deduct the amount of the gifts that they make to the NFP. Whether your organisation will be eligible is largely dependent upon your nonprofit’s specific purpose. Your purpose must fall within one of the ATO’s 50 categories in the DGR Table.

These categories are very diverse and include health, the family,  sports and recreation and even the environment! Having the DGR endorsement can make your organisation more attractive to major donors, so it’s well worth the effort to attempt to qualify and register!

Refund of Franking Credits

Your nonprofit may also be entitled to a refund of the franking credits attached to the dividends received from Australian-resident companies if your NFP received them as either a shareholder or trust beneficiary. Endorsed charities and DGRs are two of the types of NFPs that are entitled to apply for this credit.

Are You a Double Default Charity?

One important thing that nonprofit volunteer treasurers should always keep in mind is that the failure to file your Annual Information Statements can result in the loss of ACNC Registration and impede access to most of these preferential tax treatments.  You can learn more about this potential loss of benefits in our article, “Double Default Charities.”