A downloadable version of this fact sheet How to calculate your organisation's taxable income (PDF, 91KB) is available.
This fact sheet includes the concessional treatment of amounts received from members.
Does your organisation need to know about taxable income?
Not all non-profit organisations are exempt from income tax. Organisations that are not exempt need to know about taxable income as it determines whether they need to lodge tax returns and pay income tax.
How is the taxable income of a non-profit organisation calculated?
The taxable income of a non-profit organisation is calculated as the difference between its assessable income and its deductions.
Taxable income = Assessable income – deductions
The taxable income of a club, society or association is calculated in the same way as for other companies. Three particular aspects affecting many clubs, societies and associations are:
- mutual dealings with its members
- capital gains tax, and
- goods and services tax (GST).
What is assessable income?
Assessable income is, broadly speaking, the income derived by your organisation. It can also include some capital gains made on the disposal of assets. Many amounts received by a non-profit organisation will be assessable income.
Examples
Receipts that are assessable income include:
- bank interest
- dividends and other income from investments
- proceeds from fundraising drives to the public, for example sale of lamingtons, cakes or chocolates
- drinks sold at the bar to non-members visiting the club
- fees received for hiring out of the club’s hall, facilities or equipment to the public
- amounts paid by non-members to attend dinners, parties, dances or social functions organised by the club
- amounts paid by non-members to attend a talk, presentation or workshop organised by the club
- non-member proceeds from a raffle
- selling souvenirs to non-members, and
- gaming income derived by a club under arrangements entered into with an external gaming or Keno operator. Clubs that derive income under arrangements with third parties to conduct gaming or other activities on the club’s premises should read Tax Determination TD 1999/38. It discusses the assessability of such income.
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The instructions for the company tax return, and other guides available from the Tax Office, provide further information on assessable income.
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What receipts are not treated as assessable income (mutual receipts)?
Receipts derived from mutual dealings with the members of an organisation are not assessable income. They are called mutual receipts.
Examples
Examples of mutual receipts are:
- member subscriptions
- drinks sold at the bar to club members
- amounts members pay to attend dinners, parties, dances or social functions organised by the club, and
- amounts members pay to attend a talk, workshop or presentation organised by the club.
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Are all dealings with members mutual receipts?
Not all dealings involving members are necessarily mutual receipts.
Example
A recreation club enters an agreement with an independent gymnasium to operate on the club’s premises. Income received by the club from the gymnasium is assessable, even though patrons of the gymnasium may be club members.
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How are receipts divided into assessable income and mutual receipts?
In most situations, it is easy to identify and separate receipts. However, if identification and separation is not possible, you may use a practical and suitable method for apportioning the receipts. The method you choose is likely to depend on the type of receipts. We will accept your method of apportionment provided:
- there is a reason for apportioning the receipts
- the method chosen is reasonable and is not arbitrary, and
- it gives a correct reflection of the income earned.
What are deductions?
Deductions are, broadly speaking, operating expenses that are incurred in earning assessable income. The instructions for the company tax return, and other guides available from the Tax Office, will help you.
The deduction your organisation will be able to claim for expenses in earning both assessable income and non-assessable amounts will be limited to the extent that the expenditure is incurred in deriving the assessable income. Therefore, an organisation may need to apportion its expenses.
Examples
Expenses that can be deductions, but could require apportionment, include:
- printing
- postage
- stationery
- telephone
- electricity
- bank charges
- rent, and
- insurance.
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Decline in value (depreciation) may be allowable on capital items like cars, furniture and equipment.
Some expenses may be wholly incurred in deriving the organisation’s assessable income.
Examples
Deductions include:
- costs of running a function solely for non-members
- fees for earning bank interest or dividends, and
- costs of fundraising drives to the public.
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However, there are some deductions that do not have to be incurred in deriving the assessable income. They include tax deductible gifts and superannuation contributions for employees.
Rates and land taxes are deductions to the extent that premises are used to get mutual receipts or derive assessable income.
How are expenses against mutual receipts treated?
If your organisation has mutual receipts, not all the operating expenses will be deductible. The part of the expenses that were incurred to get the mutual receipts will not be deductible.
Examples
Expenses that are not deductions include costs of:
- running member-only functions
- collecting subscriptions, and
- increasing membership.
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How are expenses divided into deductible and non-deductible amounts?
In most situations it is easy to identify and separate the expenditure into deductible and non-deductible amounts. However, there may be situations where identification and separation is not possible, or where the expenditure may relate to earning both assessable income and mutual receipts. In such situations, you may choose to use a practical and suitable method of apportioning the expenses. The method of apportionment is likely to depend on the type of expenses in question. We will accept your method provided:
- there is a reason for apportioning the expenditure
- it is suitable for that type of expenditure
- it is reasonable and not arbitrary, and
- it gives a correct reflection of the expenditure incurred.
What if your non-profit organisation is a licensed or registered club?
If your organisation is a licensed or registered club, the calculation of its taxable income may be more complex.
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More information on the calculation is available in:
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How does GST affect the calculation of taxable income?
The effect of GST on the calculation of taxable income differs depending on whether your organisation is registered for GST, or is required to be registered.
If a non-profit organisation is registered for GST, or required to be registered, adjustments to assessable income and deductions may be needed to calculate the taxable income.
Your organisation’s assessable income will not include the GST payable on a taxable supply it makes.
Example
A recreational association is registered for GST. It supplies equipment to non-members for $220 per item. The price includes $20 GST.
The association’s assessable income would include $200 for each item. The $20 GST would not be included.
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Your organisation’s deductions will not include the GST credits to which it is entitled.
Example
A community club is registered for GST. It buys goods for $550 for a fundraising drive to non-members. It is entitled to a GST credit of $50 on the purchase.
The club’s deduction would be $500. It cannot claim a deduction for the part of the purchases price that it can claim as a GST credit, in this case $50.
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If your organisation is not registered for GST and is not required to be registered, no adjustment for GST is needed in calculating taxable income.
Example 1
A social club is not registered for GST and not required to be registered. It supplies equipment to non-members for $330 per item.
The club would include $330 per item as assessable income.
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Example 2
A lobbying association is not registered for GST and not required to be registered. It buys goods for $220 to help in deriving its assessable income. The $220 included $20 GST.
The association’s deduction would be $220.
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Example: Calculating taxable income
ABCD Society is a non-profit company with the following receipts and expenditure for the year ended 30 June 2007. It is not registered for GST and is not required to be registered.
Total receipts
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$
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Total expenditure
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$
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Subscriptions
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$3,000
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Postage
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$100
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Term deposit interest
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$800
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Photocopying
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$100
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Christmas dinner*
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$5,000
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Christmas dinner*
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$4,000
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Lamington sale to public
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$2,500
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Cost of lamingtons
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$1,800
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Term deposit charges
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$50
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Total
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$11,300
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$6,050
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*The Christmas dinner was attended by 70 members and 30 non-members who paid $50 each. It cost $40 per person to cater for the dinner.
The taxable income of ABCD Society is calculated as follows:
1 Determine the assessable income
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Mutual receipts
(not assessable income)
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Assessable income
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Total
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Subscriptions
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$3,000
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-
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$3,000
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Term deposit interest
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-
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$800
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$800
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Sale of lamingtons
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-
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$2,500
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$2,500
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Christmas dinner
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$3,500
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$1,500
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$5,000
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Total
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$6,500
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$4,800
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$11,300
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2 Determine the deductions
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Non-deductible
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Deductible
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Total
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Postage**
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$90
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$10
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$100
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Photocopying**
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$90
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$10
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$100
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Christmas dinner
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$2,800
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$1,200
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$4000
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Cost of lamingtons
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-
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$1,800
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$1800
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Term deposit charges
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-
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$50
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$50
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Total
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$2,980
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$3,070
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$6,050
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**The postage and photocopying expenses have been apportioned. For ABCD Society, the basis used, from an examination of its records, was that 10 per cent of communication during the year had been with non-members.
3 Taxable income
Assessable income less deductions
= $4,800 – $3,070
= $1,730
Last Modified: Friday, 5 October 2007
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