Definitions - Income tax guide for non-profit organisations

This information forms part of the publication Income tax guide for non-profit organisations (NAT 7967). It is also available in PDF and paper format.

Definitions

Activity statements
You use an activity statement to report your business tax entitlements and obligations, including GST, PAYG instalments, PAYG withholding and FBT instalments. You can offset tax payable against tax credits to arrive at a net amount.

Associates
Associates include people and entities closely associated with you, such as relatives, or closely connected companies or trusts. A partner in a partnership is an associate of the partnership. A non-profit sub-entity of an entity is an associate of the entity and every other non-profit sub-entity of that entity.

Australian business number
Your Australian business number (ABN) is your identifier for certain dealings with the Tax Office and other government departments and agencies.

Australian Business Register (ABR)
The Australian Business Register is a public register which contains details of all Australian business number (ABN) registrations.

Charity
A charity is an institution or fund established for a charitable purpose. Examples of charities include:

• religious institutions
• aged persons homes
• homeless hostels
• organisations relieving the special needs of people with disabilities, and
• societies that promote the fine arts.

Charitable fund
A charitable fund is a fund established under an instrument of trust or a will for a charitable purpose. The purposes set out in the will or instrument of trust must be charitable. Charitable funds mainly manage trust property, and/or hold trust property to make distributions to other entities or people. In contrast, if the trustee mainly carries on activities that are charitable, the fund will be treated as a charitable institution and not as a charitable fund.

Charitable institution
A charitable institution is an establishment, organisation or association that is instituted and operated to advance or promote a charitable purpose. An organisation's purposes can be found in its governing document/s and from its activities, history and control. A charitable institution will carry on charitable activities whilst a charitable fund mainly manages, and/or holds trust property.

Charitable purpose
A charitable purpose is one which the law regards as charitable. The term 'charitable' has a technical legal meaning which is different from its everyday meaning. Charitable purposes are any of the following purposes:

• the relief of poverty or sickness or the needs of the aged
• the advancement of education
• the advancement of religion
• other purposes beneficial to the community, and
• the provision of child care services on a non-profit basis.

A statutory extension to the meaning of charity applies from 1 July 2004. The provision of child care services on a non-profit basis is accepted as a charitable purpose from this date.

Deductible gift recipient (DGR)
A DGR is an entity that is entitled to receive income tax deductible gifts. All DGRs have to be endorsed, unless they are named specifically in the income tax law. There are two types of endorsement. One is for entities that are DGRs in their own right. The other is for an entity that is a DGR only in relation to a fund, authority or institution it operates. For the second type, only gifts to the fund, authority or institution are tax deductible.

Entity
For the purposes of this publication, an entity means an individual, a body corporate, a corporation sole, a body politic, a partnership, an unincorporated association or body of people, a trust or a superannuation fund.

In addition, the trustee of a trust or superannuation fund is taken to be an entity consisting of the people who are trustees at the time. That entity is a different entity to the person acting in their personal capacity. If reference is made to an entity of a particular kind (for example, trustee), it refers to the entity only in its capacity as that kind of entity.

Fringe benefits tax (FBT)
FBT is a tax payable by employers who provide fringe benefits to their employees or associates of their employees.

Goods and services tax (GST)
GST is a broad-based tax of 10% on the supply of most goods, services and anything else consumed in Australia and the importation of goods into Australia.

GST-free sales
You do not include GST in the price of GST-free sales that you make, but you are entitled to GST credits for things you have purchased or imported for use in carrying on your activities. Some examples of GST-free sales include basic food, exports, sewerage and water, the sale of a business as a going concern, non-commercial activities of charities and most education and health services.

GST (input tax) credit
An input tax credit is what you claim to get back the GST you pay in the price of goods and services you purchase for your business or enterprise. You are entitled to a GST credit for the GST included in the price you pay for purchases or importations you make for use in your business. But you are not entitled to a credit to the extent you use the purchase or importation for private purposes or, in many cases, to make input taxed sales. You will need to have a tax invoice to claim a GST credit (except for purchases with a GST-exclusive value of $50 or less, although you should have some documentary evidence to support these claims).

Health promotion charity
A health promotion charity is a non-profit charitable institution whose principal activity is promoting the prevention or control of diseases in human beings. The characteristics of a health promotion charity are:

• its principal activity is promoting the prevention or the control of diseases in human beings, and
• It is a charity which is a charitable institution.

Examples of activities that can promote the prevention or control of disease include:

• providing relevant information to sufferers of a disease, health professionals, carers and to the public
• researching how to detect, prevent or treat diseases, and
• developing or providing relevant aids and equipment to sufferers of a disease.

For more information on health promotion charities, refer to our publication GiftPack for deductible gift recipients & donors (NAT 3132).

Income tax exempt charity
An income tax exempt charity is a charity that has been endorsed by the Tax Office as exempt from income tax.

Income tax exempt fund
An income tax exempt fund is a non-charitable fund that:

• is established by will or instrument of trust solely for the purpose of providing money, property or benefits to, or establishing, deductible gift recipients
• distributes solely to income tax exempt deductible gift recipients, and
• is endorsed by the Tax Office to access income tax exemption.

Input taxed sales
You do not include GST in the price of input taxed sales you make, but neither are you entitled to GST credits for things you have purchased or imported that relate to making those input taxed sales. In some cases, you may be entitled to claim reduced GST credits. Some examples of input taxed sales include most financial supplies and supplies of residential rent and residential premises.

Non-profit
An organisation is non-profit for determining income tax exempt status if it is not carried on for the profit or gain of its individual members. This applies for direct and indirect gains, and both while the organisation is being carried on and on its winding up. The Tax Office accepts an organisation as non-profit if its constitution or governing documents prohibit distribution of profits or gains to individual members and its actions are consistent with the prohibition.

Non-profit company
A non-profit company for determining rates of income tax and whether to lodge income tax returns is:

• a company that is not carried on for the purposes of profit or gain to its individual members and is, by the terms of the company's constituent document, prohibited from making any distribution, whether in money, property or otherwise, to its members, or
• a friendly society dispensary.

Non-profit sub-entity
Certain non-profit organisations, with independent branches (units), have the option of treating their units as if they were separate entities for GST purposes and not part of the main organisation. For income tax exempt charity and DGR endorsement, it is the main organisation and not the non-profit sub-entity that must apply.

Public benevolent institution (PBI)
A public benevolent institution (PBI) is a non-profit institution organised for the direct relief of poverty, sickness, suffering, distress, misfortune, disability or helplessness. The characteristics of a PBI are:

• it is set up for needs that require benevolent relief
• it relieves those needs by directly providing services to people suffering them
• it is carried on for the public benefit
• it is non-profit
• it is an institution, and
• its dominant purpose is providing benevolent relief.

Examples of PBIs are organisations that:

• provide hostel accommodation for the homeless
• treat sufferers of disease
• provide home help for the aged and the infirm
• transport the sick or disabled, or
• rescue people who are lost or stranded.

For more information on PBIs, refer to our publication GiftPack for deductible gift recipients & donors (NAT 3132).

Pay as you go (PAYG) instalments
PAYG instalments is a system for paying amounts towards the tax you expect to owe on your business and investment income for the financial year.

Pay as you go (PAYG) withholding
PAYG withholding requires an entity to withhold an amount if it makes certain listed payments including salary, wages, commission, bonuses or allowances to an employee, directors' fees, payments for a supply (goods or services) to another business that does not quote an ABN, and certain dividend, interest and royalty payments.

Religious institution
A religious institution is a non-profit institution operated for the public benefit to advance religion in a direct and immediate sense. Religion involves belief in a supernatural being, thing or principle and the acceptance of canons of conduct which give effect to that belief. Examples of religious institutions include:

• bible colleges
• churches and other religious congregations
• institutions of missionaries, and
• seminaries.

Sales (supplies)
For GST, a sale or supply includes a sale of goods or services, a lease of premises, hire of equipment, giving of advice, export of goods and the supply of other things.

Self-assessment
The self-assessment system allows organisations to work out for themselves what their income tax status is. All organisations, with the exception of charities, are able to determine for themselves whether their organisation is taxable or income tax exempt.

The self-assessment system currently allows organisations to work out (self-assess) their entitlement to GST and FBT charity concessions. However, from 1 July 2005, charities will need to be endorsed to access GST and FBT charity tax concessions. Access to income tax charity concessions is only available to charities that have been endorsed as income tax exempt charities. This requirement was introduced from 1 July 2000.

Taxable sales (supplies)
The term is widely defined to include most supplies (goods, services and anything else) you make. A sale is not a taxable supply if it is GST-free, input taxed or otherwise non-taxable.

Tax invoice
A tax invoice is a document generally issued by the seller. It shows the price of a sale, indicating whether it includes GST, and may show the amount of GST. It must show other information, including the Australian business number of the seller. You must have a tax invoice before you can claim a GST input tax credit on your activity statement for purchases of more than $50 (excluding GST).