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Income Tax Exemptions

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Under the Income Tax Assessment Act 1997 (Cth) a not-for-profit organisation must pay tax on any 'taxable income', unless it  qualifies for an exemption.

This page provides an overview of this area, however, tax law is complex and often changes and your organisation may need some assistance from a lawyer or tax accountant.

Tax Concessions Guide

Find out if your organisation could be eligible for income tax exemption, or remain eligible (if already accessing the income tax exemption).

Click here to launch the Tax Concessions Guide app

You should use this application if:

  • you already access the income tax exemption - check that you are still eligible, and that you are accessing the exemption using the correct approach
  • you do not already access the income tax exemption - check whether you are eligible and how to access the income tax exemption

The Guide will ask you a number of questions about your group and generates assessments as you work your way through the application. Once complete you will get a tailored report (with links to further information and resources) that you can use to discuss the income tax exemption within your group and with its advisers (a lawyer or tax accountant). It takes about 10 minutes to complete.

This Guide won't give you legal advice.

This Guide is not appropriate for government entities and organisations that are specifically listed in the Income Tax Assessment Act 1997 (Cth). Further information for these organisations is set out below.

What would an income tax exemption mean for our community organisation?

If your organisation qualifies for income tax exemption, then it will not have to:

  • pay any income tax on its taxable income, or
  • lodge tax returns.

The exemption does not relate to the income tax that any employees of the organisation are required to pay. If your community organisation has employees, it will still have a legal obligation (under separate provisions of tax legislation) to collect Pay As You Go (PAYG) or other income tax withholding requirements. Also, GST may still be payable as it is not an income tax (see the Not-for-profit Law page on GST).

Which not-for-profit organisations qualify for an exemption?

Exemptions apply to:

  • Tax Concession Charities, (which need to be registered with the Australian Charities and Not-for-Profits Commission (ACNC), and then endorsed by the Australian Taxation Office (ATO))
  • community service organisations, and
  • other categories of organisations specified in the Income Tax Assessment Act, eg:
    • employer/employee associations and trade unions
    • public hospitals, not-for-profit hospitals and not-for-profit medical and hospital benefit entities
    • not-for-profit societies or associations established to promote the development of primary and secondary resources and tourism, and
    • societies, associations or clubs established for the encouragement of animal racing, art, a game or sport, literature, or music.

Does our organisation 'fit' into one of the categories for exemption?

Tax Concession Charities

Charitable institutions and funds established for public charitable purposes must be registered as a charity with the ACNC, and then endorsed by the ATO as a ‘Tax Concession Charity’ (TCC) to be income tax exempt.

If an organisation is applying to be registered as a charity with the ACNC for the first time, it can also apply for TCC status at the same time (the ACNC will pass the application onto the ATO). If an organisation is already registered with the ACNC, it can make its TCC application directly to the ATO.

For more information on the requirements and processes for TCC endorsement, see our fact sheet on Applying for TCC endorsement on our Fringe Benefits Concessions page.

Community service organisations

Community service organisations are not-for-profit organisations which promote, provide or carry out activities, facilities or projects for the benefit or welfare of the community, or any of their members who have a particular need by reason of youth, age, infirmity or disablement, poverty or social or economic circumstances. This category is only available to organisations that are ineligible for endorsement as a TCC.

Community service organisations include associations of Justices of the Peace, associations of play groups, traditional service clubs, community service clubs, and pensioner or senior citizen associations.

Groups focused on lobbying or with political purposes, or that only seek to advance the common interests of their members (for example, a social club for newcomers to a particular residential area) are not community service organisations.

You should refer to the ATO’s ‘Tax Basics for Non-Profit Organisations’ to ensure that your organisation meets all of the requirements of the community service organisation category (see Extra Resources below).

Other categories in the Income Tax Assessment Act

Other categories of community organisations specified in the Income Tax Assessment Act can also ‘self-assess’ (rather than make an application to the ATO for exemption).

While the other categories sound broad, there are quite specific definitions for each. The ATO has information about these categories and self-assessment on its website and you may wish to seek advice to confirm that your organisation qualifies for a particular category. Links to relevant web pages are in the Extra Resources section below.

Caution

Your organisation can be reviewed by the ATO, and if the ATO does not agree with your assessment,  you may need to pay back tax for the period that you wrongly self-assessed.

What if our organisation doesn't qualify for an income tax exemption?

Your organisation will be required to pay tax on any 'taxable income', and lodge income tax returns, unless it has a taxable income of less than $416. If your organisation is a membership organisation such as a club then refer to the ATO’s resource ‘Mutuality and taxable income’ to work out the taxable income (if any). Organisations need to use the 'company' tax return to lodge a return with the ATO. For more information refer to the ATO's Tax Basics for Non-profit organisations.

Your organisation should seek advice on its income tax liability. Your organisation may not have to pay tax on all its income (some income items are not included). In some cases, this may reduce your organisation's income tax liability considerably.

Extra Resources

Australian Charities and Not-for-Profit Commission (ACNC)

Australian Tax Office (ATO)

 

Last Updated: 01 March 2014

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