This guide applies from 3 December 2012 and replaces Income tax guide for non-profit organisations (NAT 7967), which was released in June 2012.
The guide has been updated to include the following tax law changes that have occurred since the last edition of Income tax guide for non-profit organisations.
Government proposals are also discussed - see Proposed changes for income tax exempt entities.
Australian Charities and Not-for-profits Commission
From 3 December 2012, there is a new national regulator for charities, the Australian Charities and Not-for-profits Commission (ACNC).
The ACNC is responsible for determining charity status for all federal tax purposes. As part of its status determinations, the ACNC also decides whether a charity is a public benevolent institution (PBI) or health promotion charity (HPC).
We will continue to be responsible for administering tax concessions, including:
- income tax exemption
- FBT rebate or exemption
- GST charity concessions
- deductible gift recipient (DGR) status.
Registration with the ACNC is voluntary. However, ACNC registration is now a prerequisite for charities to access charity tax concessions.
Transitional arrangements for religious institutions
From 3 December 2012, religious organisations can no longer self-assess as income tax exempt under the exempt entity type of 'religious institution' as the category has been removed.
To access charity tax concessions including income tax exemption, tax law changes require these organisations to register with the ACNC as a charity and then be endorsed by us.
There are transitional registration arrangements with the ACNC for religious institutions that self-assessed as income tax exempt before 3 December 2012.
These institutions can choose to:
- apply to the ACNC, using an approved form, to be registered as a charity by 2 December 2013
- after being registered by the ACNC, apply to us for endorsement to access charity tax concessions
- lose their exemption status if they do not want to be registered and endorsed.
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Proposed changes for income tax exempt entities
This section summarises government proposals affecting income tax exempt entities. At the time this publication was released, these proposals had not become law.
New conditions
The government has announced that it will amend the tax law to include a set of conditions that is expected to apply to income tax exempt entity types, including registered charities and income tax exempt funds, from 1 July 2013.
Generally, your organisation will not be exempt from income tax, unless it meets all of the following conditions:
- it is a not-for-profit entity
- it operates and pursues its purposes principally in Australia
- it complies with all the substantive requirements in its governing rules
- it uses its income and assets solely to pursue the purposes for which it is established.
Some organisations will not be required to meet all of these conditions.
'Not-for-profit' condition
From 1 July 2013, the term 'not-for-profit entity' is expected to replace defined and undefined uses of 'non-profit' in the income tax law including those parts dealing with income tax exempt status.
To meet this condition, your organisation must be an entity that does both of the following:
- It is not carried on for the profit or gain of its owners or members neither while it is operating nor upon winding up.
- Under an Australian law, foreign law or your organisation's governing rules, it is prohibited from distributing, and does not distribute, its profits or assets to its owners or members (whether money, property or other benefits), neither while it is operating nor upon winding up, unless the distribution is
- made to another not-for-profit entity with a similar purpose
- genuine compensation for services provided to, or reasonable expenses incurred on behalf of, the entity.
You would need to amend your organisation's constitution or governing rules by 1 July 2014 to remain not-for-profit, if both of the following apply to the organisation:
- We have accepted it as non-profit or not-for-profit before 1 July 2013.
- Its clauses or rules do not meet the not-for-profit condition from 1 July 2013.
From 1 July 2013, your organisation would not be required to be not-for-profit, but must meet all other conditions to be income tax exempt, if it is one of the following:
- a public educational institution that is a government entity
- a public hospital that is a government entity
- a trade union
- an employee association that is registered or recognised under the Fair Work (Registered Organisations) Act 2009 or an Australian law relating to the settlement of industrial disputes
- an employer association that is registered or recognised under the Fair Work (Registered Organisations) Act 2009 or an Australian law relating to the settlement of industrial disputes.
Also, if your organisation is one of the following types, it would only be required to be not-for-profit to be income tax exempt:
- a benefits organisation that is a private health insurer within the meaning of the Private Health Insurance Act 2007
- a society or association established for the purposes of promoting the development of one of the following
- aviation
- tourism
- agricultural resources of Australia
- aquacultural resources of Australia
- fishing resources of Australia
- horticultural resources of Australia
- industrial resources of Australia
- manufacturing resources of Australia
- pastoral resources of Australia
- viticultural resources of Australia
- Australian information and communications technology resources.
'In Australia' condition
From 1 July 2013, it is expected an entity would meet the 'in Australia' condition for income tax exemption if both of the following apply:
- It operates principally in Australia.
- It pursues its purposes principally in Australia.
Principally means mainly or chiefly. Less than 50% is not considered principally.
Many factors would need to be considered when determining if your organisation is operating and pursuing its purposes principally in Australia, including:
- where it undertakes its activities
- where its property is located
- where it is managed or controlled from
- where it is resident or located
- where its employees are located
- who is benefiting from the activities.
Also, if your organisation provides money, property or benefits to another entity that is not income tax exempt, you would need to consider the other entity's final use of that assistance when working out if your organisation is 'principally in Australia'.
Your organisation would be exempt from the 'in Australia' condition if it is either:
- an endorsed DGR
- prescribed by law as income tax exempt.
Last Modified: Friday, 23 November 2012