This guide has been prepared to help not-for-profit (NFP) clubs, societies and associations that are not exempt from income tax to complete their Company tax return 2017.
The guide will help you avoid common errors when completing your return. It will also show you how to complete related labels correctly.
Read this guide in conjunction with:
Find out about:
- Who should use this guide
- Work out if you need to lodge a company tax return
- Completing your company tax return
- Example – case study 2
Who should use this guide
You should use this guide if you are a financial officer, tax professional or other person involved in the administration of a taxable NFP organisation.
For this guide to apply to your organisation, your organisation must be both:
- not-for-profit
- taxable.
For examples of the types of organisations covered by this guide, see the Industry codes table.
Not-for-profit
The basic premise of a NFP organisation is that it is not operating for the profit or gain of its individual members, whether these gains are direct or indirect. This applies both while the organisation is operating and when it winds up.
Any profit made by the organisation goes back into the operation of the organisation to carry out its purposes and is not distributed to any of its members.
We accept an organisation as NFP where its constituent or governing documents prevent it from distributing profits or assets for the benefit of particular people. These documents should contain acceptable clauses showing the organisation’s NFP character. The organisation’s actions must be consistent with this requirement.
See also:
- Examples of clauses that indicate NFP character – Mutuality and taxable income
Taxable
Not-for-profit organisations can be either exempt or taxable.
Many not-for-profit organisations are taxable and may need to lodge tax returns and pay income tax.
Put simply, if your not-for-profit organisation is not exempt from income tax, it is taxable. Only certain types of not-for-profit organisations are exempt from income tax.
See also:
- If your NFP organisation is taxable or exempt – Do you have to pay income tax?
Organisations not covered
This guide does not cover:
- partnerships
- strata-title bodies corporate
- friendly societies
- life assurance companies
- life insurance companies
- mutual insurance companies
- credit unions.
Work out if you need to lodge a company tax return
To work out whether your organisation needs to lodge a company tax return, you need to:
- determine whether your organisation is a non-profit company or other taxable company
- know your organisation’s taxable income threshold for lodgment
- calculate your organisation’s taxable income.
Non-profit company or other taxable company
For income tax purposes, taxable non-profit organisations are treated as either:
- non-profit companies
- other taxable companies.
A NFP organisation does not need to be incorporated to be treated as a company for income tax purposes.
NFP companies and other taxable companies use the company tax return.
See also:
- If your organisation is a non-profit company or other taxable company – Mutuality and taxable income.
Taxable threshold for lodgment
If your organisation is a 'non-profit company that is an Australian resident and its taxable income is over $416 for the 2016–17 income year, it will need to lodge a company tax return. If the taxable income is below the threshold, it is not required to lodge a tax return for that year. However, we may notify a particular company that it is required to lodge a return.
If your organisation is an ‘other taxable company’ and its taxable income is greater than $0 for the 2016–17 income year, it also needs to lodge a company tax return.
Taxable income is rounded down to the nearest dollar.
Calculate your organisation’s taxable income
Taxable income is calculated as the difference between an organisation’s assessable income and allowable deductions.
|
Taxable income |
= |
assessable income |
- |
allowable deductions |
|---|
The taxable income of a club, society or association is calculated in the same way as a company for income tax purposes.
Mutuality principle
One particular issue that affects many clubs, societies and associations is the taxation treatment of mutual dealings with members.
As a result of the mutuality principle:
- receipts derived from mutual dealings with members are not assessable income (these are called mutual receipts)
- expenses incurred to get mutual receipts are not deductible.
Mutual receipts are not subject to income tax because they are not assessable income not because they are exempt income.
See also:
Four steps to calculate taxable income
Because of the mutuality principle, revenue and expenses of an organisation fall within one of three categories for income tax purposes.
Revenue and expenses categories
|
Category |
Revenue |
Expenses |
|---|---|---|
|
1 |
Non-assessable |
Non-deductible |
|
2 |
Assessable |
Deductible |
|
3 |
Apportionable |
Apportionable |
These categories are used in the following four steps to calculate an organisation’s taxable income:
- Step 1: Classify revenue into non-assessable, assessable and apportionable.
- Step 2: Classify expenses into non-deductible, deductible and apportionable.
- Step 3: Separate the apportionable items by appropriate methods.
- Step 4: Calculate the taxable income.
See also:
- Mutuality and taxable income – ordinary income
- Choosing an apportionment method
- Steps for calculating taxable income
Completing your company tax return
NFP organisations that are required to lodge a tax return use the company tax return.
The following tips will help you to avoid common errors made by NFP organisations when completing the company tax return:
- Relevant period
- Item 2 Description of main business activity
- Item 3 Status of company
- Item 6 Calculation of total profit or loss
- Item 7 Reconciliation to taxable income
- Item 15 Licensed clubs only.
This guide does not cover all of the items in the company tax return that may apply to NFP organisations.
Relevant period
An entity’s income year for the purposes of tax law is usually the period of 12 months ending on 30 June each year.
If you do not write any dates in this field, then your organisation will be treated as having a 1 July to 30 June income year.
Common errors: dates shown incorrectly
There are two main errors:
- writing a period other than ending 30 June, without having an approved substituted accounting period (SAP)
- having an approved SAP, but not writing any dates.
Consequence of these errors
We may return your tax return as incomplete and ask you to lodge it with the approved SAP date. We will consider that you have not lodged a tax return until you lodge your corrected tax return.
We may approve a SAP retrospectively, but this can result in:
- pay as you go instalments being allocated to a wrong year
- incorrect due dates for lodgment
- delays in the processing of refunds
- the application of penalties.
Solutions
An entity that wishes to adopt a SAP can only do so with the Commissioner of Taxation’s approval.
An entity with an approved SAP should use the company tax return for the correct income year. For example, if an organisation has an approved SAP with a balance date between:
- 1 July 2016 and 30 November 2016 inclusive, it should use the 2016 company tax return
- 1 December 2016 and 30 June 2017 inclusive, it should use the 2017 company tax return.
How you know if your organisation has an approved SAP
We would have sent you a letter confirming your approved SAP.
You can also check by phoning us on 1300 130 248.
Granting of a SAP
A SAP may be approved if your organisation can demonstrate that its circumstances are out of the ‘ordinary run’.
Circumstances which are out of the ‘ordinary run’ include:
- an ongoing event, industry practice, business driver or other ongoing circumstance which makes 30 June either inappropriate or impractical as a balance date
- alignment of balance dates within a group.
See also:
While it is not possible to set out all the circumstances in which a SAP may be granted, Law Administration Practice Statement PS LA 2007/21 Substituted accounting periods contains examples of facts and circumstances that may be considered relevant in deciding if a SAP should be granted.
Item 2 Description of main business activity
Item 2 requires an entity to describe as accurately as possible the business activity from which it derives the most gross income.
Write at B the appropriate industry code for the entity’s main business.
Common error: inappropriate industry code
An inappropriate industry code is entered at B.
Consequence of this error
An incorrect code may result in your organisation:
- not receiving a necessary service or material from us
- being inappropriately selected for audit.
Solutions
Write the code that most accurately describes your business activity.
Industry codes commonly used by taxable non-profit member-based organisations are listed in the following table.
Industry codes
Industry codes commonly used by taxable non-profit member-based organisations
|
Code and description |
Organisations covered |
|---|---|
|
45301
|
Organisations mainly engaged in providing hospitality services to their members. These hospitality services include gambling, sporting or other social or entertainment facilities. Examples:
|
|
45302 Clubs – not licensed, hospitality, with staff
|
As above |
|
95599
|
Organisations mainly engaged in activities which promote the interests of their members (except religious, business and professional, and labour association services). Also included are organisations not elsewhere classified providing a range of community or sectional interests or in providing civic and social advocacy services. Examples:
|
|
95510
|
Organisations mainly engaged in promoting the business interests of their members (except of organised labour associations and union members). Examples:
|
See also:
- Full listing of industry codes – Business industry code tool
Item 3 Status of company
Item 3 requires an entity to select the most appropriate description of its status.
You need to select one box from C1 to C3 and one box from D1 to D10.
You may also need to select F1 or G1, Z1 or Z2, and one box from E1 to E3.
Common error: D1 to D10 incorrectly selected
An incorrect box is selected from D1 to D10.
Consequence of this error
Marking an incorrect box may result in your organisation:
- not receiving a necessary service or material from us
- paying an incorrect tax rate
- being inappropriately selected for audit.
Solutions
Organisations that are ‘non-profit companies’ should select D3 Non-profit.
For administrative purposes, non-profit organisations that are ‘other taxable companies’ should select D10 Public.
See also:
Consolidation
If your organisation is a non-profit company and a head company of a consolidated group, you will need to select Z1 Consolidated head company.
If your organisation is a non-profit company, it cannot be a subsidiary member of a consolidated group or a multiple entry consolidated (MEC) group. You cannot select Z2 Consolidated subsidiary member.
See also:
- MEC groups – Consolidation reference manual
Item 6 Calculation of total profit or loss
The Income and Expenses amounts you write at item 6 are accounting system amounts and correspond to the amounts in the financial statements for the income year, except for the depreciation expenses of small business entities using the simplified depreciation rules.
Common errors: income and expenses incorrectly shown
Income and expenses from financial statements are often shown incorrectly at item 6. There are two main errors:
- showing incorrect amounts
- using incorrect labels.
Consequence of these errors
Errors in item 6 could lead to your organisation:
- paying an incorrect amount of tax
- being inappropriately selected for audit.
Solutions
- Mutual receipts and expenses
- You must include receipts and expenses that relate to mutual dealings with members at the relevant labels in the item.
- It is important you include these items at item 6 in order to correctly reconcile the accounting total profit or loss to the taxable income or loss in item 7 Reconciliation to taxable income or loss.
- I Fringe benefit employee contributions
- Write at I Fringe benefit employee contributions all payments that the entity has received from recipients of fringe benefits.
- Employee contributions form part of the employer’s or associate’s assessable income if employees make payments for fringe benefits that they have received.
- Some important points to note about employee contributions are
- An employee contribution may be made only from an employee’s after-tax income.
- You cannot use an employee contribution towards a particular fringe benefit to reduce the taxable value of any other fringe benefit.
- In certain circumstances, journal entries in your accounts can be an employee contribution.
- An employee contribution paid directly to you (including those received by journal entry) are included in your assessable income (as a general rule, the costs you incur in providing fringe benefits are allowable deductions).
- An employee contribution paid to a third party who is not an associate (for example, for the servicing of a car) is not assessable to you.
- When calculating the taxable value of a benefit, you use the full GST-inclusive amount of the contribution to reduce the taxable value of the benefit.
- X Depreciation expenses
- Where an entity uses the simplified depreciation rules, the actual tax deduction for depreciation is included at X.
- Otherwise, only write the amount of depreciation for accounting purposes.
See also:
Capital allowances and depreciating assets
Item 7 Reconciliation to taxable income or loss
Item 7 deals with adjustments for tax purposes to reconcile accounting total profit or loss to the taxable income or loss.
Common errors: amounts incorrectly shown
Various errors are made in item 7, including:
- the incorrect use of labels to report revenue and
- expenses relating to mutual dealings with members.
Consequence of these errors
Errors in item 7 could lead to your organisation:
- paying an incorrect amount of tax
- being inappropriately selected for audit.
Solutions
- W Non-deductible expenses
- W Non-deductible expenses includes amounts that are expenses for accounting purposes but are not deductible for income tax purposes, including timing variations.
- Expenses relating to mutual dealings with members are included at W.
- W excludes any amount included at U Non-deductible exempt income expenditure item 7.
- Depreciation/decline in value
- Depreciation for accounting purposes is included at W. This is also the amount entered at X Depreciation expenses item 6.
- Enter the tax-deductible amount of decline in value at F Deduction for decline in value of depreciating assets item 7.
- V Exempt income
- Write at V all income that is exempt from Australian tax. Do not include at V amounts that are not assessable income and not exempt income.
- Do not include mutual receipts at V Exempt income. Include these amounts at Q Other income not included in assessable income.
- Q Other income not included in assessable income
- Q includes amounts that are income for accounting purposes but not assessable for income tax.
- Mutual receipts are included at Q.
See also:
- Depreciation/decline in value – Depreciating assets
- Mutual receipts – Classifying revenue
Item 15 Licensed clubs only
Only licensed clubs need to complete this label.
Write the percentage (in whole figures) of total income attributable to non-members at A Percentage of non-member income item 15.
Common errors: percentage shown incorrectly or item left blank
There are two main errors:
- showing an incorrect percentage
- not writing any percentage.
Consequence of these errors
Errors in item 15 could lead to your organisation:
- paying an incorrect amount of tax
- being inappropriately selected for audit.
Solutions
The percentage of non-member income is the total non-member income divided by the total income, multiplied by 100.
The percentage entered at this item differs to the percentage calculated by the Waratahs formula where:
- total income includes non-member income such as bank interest
- more than one method of apportionment has been used.
See also:
Explanation of the Waratahs formula – Mutuality and taxable income
Example – case study 2
This example uses information provided in Case study 2 in Mutuality and taxable income. Refer to Case study 2 for information to help you understand this example, such as the Celadon Club's financial statements and the calculation of its taxable income.
The Celadon Club has determined its taxable income for the year ended 30 June and is ready to complete its 2017 company tax return.
For guidance in completing its tax return, the club uses:
- this guide
- the Company tax return instructions 2017.
The following are extracts of the labels on the club’s completed return.
Relevant period
The club leaves this item blank, as the dates will default as 1 July 2016 to 30 June 2017.
Item 2 Description of main business activity
The club’s main activity is providing licensed facilities to its members and the general public. It enters ‘Licensed club’ in the ‘Description of main business activity’ item and ‘45301’ at B Industry code.
Item 3 Status of company
The club is resident in Australia and is a non-profit company. It selects C1 and D3.
The club is a small business entity. It also selects F1.
The club does not select any other boxes as none of them apply.
Item 6 Calculation of total profit or loss
Item 6 amounts are from the following calculations. The club uses the revenue and expense items from its financial statements (to see their financial statements, refer to Case study 2 in Mutuality and taxable income).
T Total profit or loss equals the club’s net profit in its financial statements.
Income
|
Label |
Revenue item |
$ |
|---|---|---|
|
C |
Bar sales |
827,695 |
|
C |
Bingo and raffle income |
23,496 |
|
C |
Club luncheons – ticket sales |
22,500 |
|
C |
Poker machine revenue |
1,598,247 |
|
|
|
2,471,938 |
|
|
|
|
|
F |
Interest received |
54,322 |
|
|
|
|
|
G |
Function room hire |
6,000 |
|
G |
Lease income – restaurant |
10,000 |
|
|
|
16,000 |
|
|
|
|
|
R |
Total of other revenue amounts |
137,840 |
|
|
|
|
|
S |
Total |
2,680,100 |
Note: C Other sales of goods and services includes gross sales of trading stock and gross earnings from services. After filling in relevant specific labels, any remaining gross revenue (such as membership subscriptions) is included at R Other gross income.
Expenses
|
Label |
Expense item |
$ |
|---|---|---|
|
A |
Bar expenses – cost of goods sold |
392,576 |
|
A |
Bingo expenses |
4,533 |
|
A |
Club luncheons – catering |
13,500 |
|
A |
Club luncheons – entertainment |
3,000 |
|
A |
Raffle expenses |
24,851 |
|
A |
Central monitoring service charges |
26,183 |
|
|
|
464,643 |
|
|
|
|
|
D |
Superannuation |
66,499 |
|
|
|
|
|
X |
Bar – decline in value |
13,592 |
|
X |
Decline in value (depreciating assets) |
121,498 |
|
X |
Gaming – decline in value |
262,481 |
|
|
|
397,571 |
|
|
|
|
|
Z |
Bar – maintenance and supplies |
29,764 |
|
Z |
Gaming – repairs and maintenance |
36,438 |
|
Z |
Repairs and maintenance |
86,563 |
|
|
|
152,765 |
|
|
|
|
|
S |
Total of other expense amounts |
1,320,429 |
|
|
|
|
|
Q |
Total |
2,401,907 |
Note: X Depreciation expenses includes depreciation amounts for accounting purposes because the club is not using the simplified depreciation rules. After filling in relevant specific labels, any remaining expenditure (such as subscription expenses) is included at S All other expenses.
Item 7 Reconciliation to taxable income or loss
Item 7 amounts are from the following calculations. The club uses worksheet 2 in the Company tax return instructions 2017 for W Non-deductible expenses and Q Other income not included in assessable income.
T Taxable income or loss equals the club's taxable income in Case study 2 in Mutuality and taxable income.
|
Label |
Classification item |
$ |
|---|---|---|
|
W |
Depreciation expenses – X item 6 |
397,571 |
|
W |
Expenses incurred in deriving non-assessable non-exempt income: |
|
|
|
members magazine
|
8,000 |
|
|
membership cards
|
2,000 |
|
|
subscription expenses
|
9,226 |
|
|
other non-deductible expenses less non-deductible decline in value expenses (see note a)
|
1,352,186 |
|
|
|
1,768,983 |
|
|
|
|
|
F |
Deduction for decline in value of depreciating assets (see note b) |
111,479 |
|
|
|
|
|
Q |
Other income amounts in the accounts that are not assessable income: |
|
|
|
member subscriptions
|
51,800 |
|
|
other non-assessable revenue (see note c)
|
1,780,616 |
|
|
|
1,832,416 |
Notes:
The following figures are taken from 'STEP 3: Separate the apportionable items' in Case study 2 in Mutuality and taxable income:
a Total non-deductible expenses less total non-deductible decline in value (depreciating assets)
= $1,638,278 – ($9,781 + $87,430 + $188,881)
= $1,352,186
b Total deductible decline in value (depreciating assets)
= $3,811 + $34,068 + $73,600
= $111,479
c Total non-assessable revenue = $1,780,616.
Item 15 Licensed clubs only
As the Celadon Club is a licensed club, it calculates the percentage of its non-member income as follows:
|
= |
total non-member income |
x 100 |
|
|
total income |
|
|
|
|
|
|
= |
$847,684 |
x 100 |
|
|
$2,680,100 |
|
|
|
|
|
|
= |
31.6288% |
|
Note: Total non-member income = Assessable income from 'STEP 4: Calculate the taxable income' in Case study 2 in Mutuality and taxable income.
The club rounds the percentage to whole figures and writes 32% at A.
The percentage of non-member income entered at this item differs from the club's non-member percentages calculated in Case study 2 of Mutuality and taxable income. This is because:
- the club used more than one method of apportionment – that is, a simple method and the Waratahs formula
- the club's total income includes non-member income such as bank interest.