This fact sheet explains how capital gains tax (CGT) can apply to non-profit clubs, societies and associations which are:
- not exempt from income tax, and
- treated as companies for income tax purposes.
Non-profit clubs, societies and associations that are exempt from income tax are also exempt from capital gains tax.
There is no separate tax on capital gains, it is merely a component of income tax. An organisation is taxed on the net capital gain it includes in its annual income tax return at the company tax rate (currently 30%).
An organisation’s net capital gain
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Total capital gains for the year
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Total capital losses including any net capital losses from previous years
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Any CGT small business concessions
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Information about working out a net capital gain or net capital loss is provided in the Guide to capital gains tax (NAT 4151).
Generally, a capital gain or capital loss is made if a CGT event happens. Many CGT events are transactions that involve a CGT asset while other CGT events relate directly to capital receipts.
The most common CGT event (known as CGT event A1) happens if an organisation disposes of an asset to someone else - for example, it sells or gives away an asset. Examples of other CGT events are:
- the loss or destruction of an asset (the destruction may be voluntary or involuntary)
- the cancellation, surrender or redemption of shares
- the receipt of a payment for creating a right in another entity, and
- the receipt of a lease premium.
There is a summary of CGT events in the Guide to capital gains tax (NAT 4151).
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There are special rules that apply when working out gains and losses from depreciating assets.
If you use a depreciating asset for a taxable purpose, any gain you make on its disposal is treated as ordinary income and any loss as a deduction. However, a capital gain or capital loss will arise from the disposal of a depreciating asset to the extent that the asset has been used for a non-taxable purpose.
If your organisation has disposed of an asset that has been depreciated, see Guide to depreciating assets 2007-08 (NAT 1996).
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For a CGT event involving an asset, a capital gain or loss is broadly the difference between the amount paid for the asset and the amount received for it. In some cases, the amount paid or received for an asset is taken to be its market value. Incidental costs involved with acquiring and disposing of the asset, such as legal fees and commissions, can also be taken into account.
For other CGT events, a capital gain or loss is generally the difference between the amount received and the costs involved with the transaction.
If your organisation’s total capital losses for the income year are more than its total capital gains, the difference is a net capital loss for the year. The net capital loss can be carried forward to later income years to be deducted from future capital gains.
Generally, any capital gain or loss from an asset that was acquired before 20 September 1985 (pre-CGT assets) is disregarded.
Although receipts from an organisation’s members are not treated as ordinary income (the principle of mutuality), that does not mean that an asset purchased with those receipts is exempt from CGT.
Example
An incorporated association owned a property purchased with contributions made by the members. The property was used and maintained as an administration centre to collect member subscriptions and to administer activities for the benefit of members.
A capital gain arising on sale of the property is not exempt from CGT.
The CGT discount (which enables some capital gains to be reduced by up to 50%) is not available to companies. As a non-profit club, society or association is treated as a company for tax purposes, the CGT discount cannot reduce any capital gain it may make. However, the small business 50% active asset reduction may apply – see below for more information.
There are several CGT concessions available to small businesses if certain conditions are satisfied. One of these conditions is that the total of the net market value of the organisation’s assets and those of certain affiliates and connected entities is $6 million or less just before a CGT event happens to the asset. Another condition is that the relevant asset is used by the organisation, or by an affiliate or connected entity, in the course of carrying on a business. For 2006-07 and prior years, the threshold was $5 million in net assets.
For 2007-08 and later income years, there is an alternative turnover test available if the organisation carries on a business. If the asset is used in the business and the turnover of the organisation, and any affiliate or entity connected with the organisation, is less than $2 million, the organisation may also qualify for the CGT small business concessions.
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In the 2008 Budget, the government announced that it will increase access to the small business capital gains tax (CGT) concessions for businesses with a turnover that is less than $2 million via the small business entity test, for:
- taxpayers owning a CGT asset used in the business of a related (affiliate or connected) entity, and
- partners owning a CGT asset used in the partnership business.
The changes will apply with effect from the 2007-08 income year. At the time of publication of this fact sheet this legislation had not been introduced to the parliament. For more information, refer to www.ato.gov.au/SBconcessions
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Your organisation may be entitled to:
- the small business 50% active asset reduction – which reduces a capital gain by 50%, or
- small business roll-over – which defers a capital gain for a minimum of two years, or longer, if a replacement asset is acquired or expenditure is incurred in making improvements to existing assets.
These concessions and their conditions are explained in detail in the publication Guide to capital gains tax concessions for small business (NAT 8384).
There is a range of exemptions and roll-overs that can reduce the amount of a capital gain or loss or defer the capital gain or loss. Examples are:
- an exemption for cars and motor cycles
- roll-over if a statutory licence is renewed or extended, and
- roll-over if an asset is compulsorily acquired.
Exemptions and roll-overs may apply to your organisation if it meets the relevant conditions.
An organisation may be unincorporated, incorporated under the Corporations Act 2001 or an equivalent foreign law, or incorporated under a law other than a company law – for example, the Associations Incorporation Act 1981 (Qld).
Where an unincorporated association incorporates, a CGT event may happen to each of the CGT assets that it owns because, upon incorporation, there is a change of ownership. If an incorporated organisation changes the form of its incorporation, there may also be CGT consequences, depending on the relevant legislation.
If your organisation changes status and you are unsure about the CGT consequences, you should seek advice from the Tax Office or a professional adviser.
Example
Impossible Club, an unincorporated association, bought land with a club-house on it in Brisbane in 1995. In February 2002, the club incorporated under the Associations Incorporation Act 1981 (Qld).
CGT event A1 happens to the property. The club will make a capital gain if the market value of the property at that time exceeds the cost base of the property. The club will make a capital loss if the market value of the property is less than its reduced cost base.
There can be CGT consequences if organisations amalgamate. For example, capital gains and losses may arise if assets owned by one organisation are transferred to another organisation. Similarly, the winding up of organisations can result in capital gains and losses.
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More information can be obtained in the following publications:
To obtain copies of our publications:
- visit our website at www.ato.gov.au/nonprofit
- phone 1300 720 092 and quote the NAT number (which is a unique national identifying number we give each of our publications, for example, NAT 3132), or
- write to us at PO Box 1130 Penrith NSW 2740.
For more information about non-profit topics, phone our information line on 1300 130 248.
If you do not speak English well and want to talk to a tax officer, phone the Translating and Interpreting Service on 13 14 50 for help with your call.
If you have a hearing or speech impairment and use a TTY or modem, phone the National Relay Service on 13 36 77. For 1800 toll-free numbers, phone 1800 555 677 and quote the number you need.
If you have a speech impairment and do not use a TTY or modem, phone the Speech to Speech Relay Service on 1300 555 727. For 1800 toll-free numbers, phone 1800 555 677 and quote the number you need.
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Last Modified: Tuesday, 5 August 2008
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