GST tips for non-profit organisations

What is a non-profit organisation?

A non-profit organisation does not operate for the profit or gain of its members (directly or indirectly). Any profit made by a non-profit organisation goes directly back into the organisation; it is not distributed to any of its members.

This applies while the organisation is operating, and when it winds up.

Some GST concessions apply to non-profit organisations generally, however some only apply to charities and gift-deductible entities.

What is a charity?

A charity is an institution or fund established for a charitable purpose, such as poverty relief.

To receive GST concessions:

• the charity’s sole purpose should be charitable, and
• the charity must be endorsed - by us - as a charity for tax purposes.

For more information on charitable institutions and charitable funds, refer to Income tax guide for non-profit organisations (NAT 7967).

What is a gift-deductible entity?

A gift-deductible entity is an organisation that can receive tax-deductible gifts or contributions.

For more information on gift-deductible entities, refer to GiftPack (NAT 3132).

Most non-profit organisations registered for GST can access GST concessions, however, some concessions apply only to charities and gift-deductible entities.

Non-profit sub-entities

Some non-profit organisations can choose to have some or all of their branches or units treated as separate entities (non-profit sub-entities) for GST purposes. They include:

• endorsed charitable institutions
• charitable funds where the trustee is endorsed
• gift-deductible entities
• government schools, and
• some other income tax-exempt non-profit organisations.

Branches or units can only be treated as non-profit sub-entities only if their activities are separately identifiable from those of the main entity with reference to either the nature of the activities or the location of the activities.

The branch or unit must also have an independent accounting system.

If the branch or unit has activities that directly relate to the main purpose of the non-profit organisation, such as providing membership services for the main branch, it cannot be treated as a non-profit sub-entity.

For more information about non-profit sub-entities, refer to: Tax basics for non-profit organisations (NAT 7966) - Non-profit sub-entities in the GST section Non-profit organisations and Fundraising (NAT 13095) - GST concessions in the GST section, and Charities Consultative Committee resolved issues document - sub-entities in issue 2 of part 1 (ABN and GST registration).

GST registration

Registering for GST

You must register your organisation for GST if it is a non-profit organisation and it has a GST turnover of $150,000 or more.

You may register voluntarily for GST if the turnover is less than $150,000.

In some circumstances you must register for GST even if your turnover is less than $150,000. For example, if your non-profit organisation has non-profit sub-entities.

For more information about registering your non-profit organisation for GST refer to: GST for small business (NAT 3014) Tax basics for non-profit organisations (NAT 7966) - GST section Fundraising (NAT 13095) - GST section, and Charities Consultative Committee resolved issues document - part 1 (ABN and GST Registration).

Cancelling your GST registration

If you are not required to be registered for GST, and wish to cancel your registration, you must notify us in writing.

Use the Application to cancel registration (NAT 2955). You can order a paper copy of this form:

• through online ordering, or
• by phoning 1300 720 092.

For more information about cancelling GST registration, refer to Leaving the GST system (NAT 14829).

Cancelling your GST registration may: affect your ability to claim GST credits on purchases, and require you to repay some of the GST credits you have previously claimed in respect of assets on hand at the time of cancellation.

Common accounting and reporting errors

Taxable sales

Most sales are taxable. Your non-profit organisation makes a taxable sale if:

• it is registered, or required to be registered for GST
• it receives payment for the sale it makes
• it makes the sale in the course or furtherance of its activities, and
• the sale is connected with Australia.

GST applies to all taxable sales.

GST-free sales

GST-free sales include:

• most health and medical care services
• most educational services
• most food for human consumption (other than prepared foods, confectionary, snacks, ice-cream, biscuits, alcohol, soft-drinks and some other drinks)
• some activities of charities and gift-deductible entities
• international travel and transport
• sales of ‘going concerns’
• some dealings with land, and
• exports of goods or services (if certain requirements are met).

GST is not charged on GST-free sales.

If your organisation makes GST-free sales, you may be entitled to claim a GST credit for the GST included in the cost of purchases made associated with the sale.

Input taxed sales

Input taxed sales include:

• financial supplies
• leasing of private residential premises for rent, and
• some transactions involving precious metals.

GST is not charged on input taxed sales.

If your organisation makes input taxed sales, for example, it leases residential premises and collects rent, you cannot claim GST credits for the GST included in the cost of purchases made associated with the sales.

Common GST errors

We have identified a range of common problems people encountered when filling out their business activity statements.

For more information on common GST errors, refer to: Common errors when accounting for GST Common GST errors and property Common GST errors when completing your activity statement, and Common errors when claiming GST credits.

Change in use of goods and services

If your non-profit organisation makes a purchase for business purposes and the purchase does not relate to making input taxed sales it is considered as being for a ‘creditable purpose’. This means you will generally be able to claim a GST credit for the purchase.

The amount of GST credit you can claim depends on the extent to which your purchase is used for a creditable purpose. The extent to which you use a purchase for a creditable purpose may change over time. That is, you may use the purchase for a creditable purpose to a greater, or lesser, extent than you intended. For example, you used the business purchase for a private or domestic purpose.

The ‘creditable purpose’ of a purchase changes if:

• there is a difference between how you planned to use the thing purchased and how you actually used it, or
• the way you used the thing purchased changes from adjustment period to adjustment period.

Adjustments are required for these changes in use because the amount of GST credits you have previously claimed on the purchase will either have been too much or too little. You generally need to make these types of adjustments on your June activity statement.

For more information refer to GSTR 2000/24 Goods and services tax: Division 129 – making adjustments for changes in extent of creditable purpose.

Assets

Asset disposal

Most assets your non-profit organisation sells will be subject to GST; however some will not, for example sales of houses or flats used predominantly for residential accommodation.

If you sell assets such as motor vehicles, property or machinery, you must account for GST on the sale.

This is the case unless you sell the asset for less than 75% of its original cost or for less than 50% of its market value and you are:

• an endorsed charitable institution
• a charitable fund’s endorsed trustee
• a gift deductible entity, or
• a government school.

This means that you do not charge GST on the sale price and you should not issue a tax invoice to the buyer.

For more information about accounting for GST on asset disposal refer to GST and the disposal of capital assets (NAT 7682).

Wrongly issued tax invoices on sales of assets.

If you incorrectly treat a sale as taxable and issue a tax invoice, you must immediately cancel the tax invoice and advise the purchaser.

This situation can often arise when, for example, car dealers accept trade-ins.

For more information refer to GST and motor vehicle trade-ins for charities (NAT 12353).

Employees, officers, agents and volunteers - reimbursements

Your organisation can claim a GST credit when it reimburses employees, officers, volunteers and agents for their out of pocket expenses when certain requirements are satisfied.

Employees and officers

If you are registered for GST, you can claim a GST credit on an employee or officer reimbursement if:

• your employee’s or officer's expense:
• was directly related to their activities as your employee or officer, or
• is an expense payment fringe benefit.
• GST was included in the price the employee or officer paid
• you hold appropriate documentation, for example a valid tax invoice
• your employee or officer is not entitled to claim a GST credit for the expense
• the expense is not listed as non-deductible, and
• the expense is for a creditable purpose.

Volunteers

We sometimes receive questions from organisations on whether they can claim GST credits on reimbursements to volunteers when purchases are made by the volunteer in carrying out the organisation’s activities.

Non-profit organisations, for example sporting clubs, generally can not claim GST credits when they reimburse a volunteer. However, you can claim a GST credit for volunteer reimbursements if:

• you are:
• an endorsed charitable institution
• an endorsed trustee of a charitable fund
• a gift-deductible entity, or
• a government school, and
• the volunteer’s expense was related to your activities
• GST was included in the price the volunteer paid
• you hold appropriate documentation, for example a valid tax invoice
• the volunteer is not entitled to claim a GST credit for the expense
• the expense is not listed as non-deductible, and
• the expense is for a creditable purpose.

Agents

If you are registered for GST, you can claim a GST credit on an agent reimbursement if:

• the agent, on their own behalf, incurred an expense that was directly related to their activities as your agent (for example, the agent incurred petrol expenses)
• GST was included in the price the agent paid
• you hold appropriate documentation, for example a valid tax invoice
• your agent is not entitled to claim a GST credit for the expense
• the expense is not listed as non-deductible, and
• the expense is for a creditable purpose.

Documentation you need

If the purchase is:

• over $82.50 (GST inclusive), your organisation must hold the tax invoice issued to your employee, officer, agent or volunteer for the purchase they made, and GST must be included in the price paid, or
   
• $82.50 or less (GST inclusive), your organisation does not need to hold a tax invoice, but must have some other documentary evidence of the purchase, (for example, a cash receipt issued to your employee, officer, agent or volunteer for the purchase they made) and GST must be included in the price paid.

For more information about reimbursing employees and volunteers, refer to: Volunteers and tax (NAT 4612) Valid tax invoices and GST credits (NAT 12358), and Charities Consultative Committee resolved issues document - part 7 – Reimbursements, volunteers and payments to contractors.

Incorrect claims for third party payments

You can generally only claim a GST credit if you are the recipient of the goods or services purchased. That is, you cannot claim GST credits when you pay a supplier for a purchase made by another party.

There are some exceptions. For example, reimbursing an employee for an expense they incurred that was directly related to their activities as an employee.

Charities and other agencies often make payments on behalf of people or other charitable organisations. Because these types of payments are made on behalf of others, the payer cannot claim a credit for the GST paid.

GST credits cannot be claimed for third-party payments made on behalf of:

• related organisations, including a non-profit sub-entity (especially if the related organisation is not registered for GST), and
• beneficiaries of your activities, for example, if you pay for goods or services (such as electricity) purchased by people who cannot pay (perhaps due to financial hardship).

You should only claim GST credits for goods or services your organisation receives for business use.

For more information about third-party payments, refer to the following sections of GSTR 2006/9: Proposition 14 – a third party may pay for a supply but not be the recipient of the supply, and Case study 2 – The Bus Company.

Sales to associates for inadequate payment

Associates of a non-profit organisation include its non-profit sub-entities.

If you sell goods or services to an associate at less than their full value, you have to pay GST on the full value of the thing sold, if:

• your associate is not registered for GST, or
• the purchase is not solely for a creditable purpose.