• Can you be endorsed as a TCC?

    There are some requirements you have to meet before your charity can be endorsed to access one or more of the charity tax concessions. Charities that are endorsed to access any of these concessions are referred to as tax concession charities (TCCs).

    To be endorsed to access charity tax concessions, your charity must:

    • have an Australian business number (ABN)
    • be a registered charity.

    Australian business number

    The ABN must be the ABN of the entity itself. An ABN held by a non-profit sub-entity is not sufficient.

    See also:

    Does your organisation need an ABN?

    Registered charity

    Charities must be registered with the Australian Charities and Not-for-profits Commission (ACNC) before we can endorse them to access charity tax concessions. Different tax concessions are available for charities that also register with the ACNC as a particular subtype of charity, such as a public benevolent institution or a health promotion charity.

    See also:

    Income tax exemption

    To be endorsed as income tax exempt, your charity must meet certain requirements.

    Your charity is entitled to be endorsed for income tax exemption if it:

    Diagram 1 summarises the requirements charities must meet to be endorsed as income tax exempt.

    Diagram 1: Income tax exemption for charities

    Income tax exemption for charities

    In Australia test

    Your registered charity will meet this test if it meets both of the following requirements:

    • It has a physical presence in Australia.
    • To the extent that it has a physical presence in Australia, it incurs its expenditure and pursues its objectives principally in Australia.

    If your registered charity does not meet these requirements it may still meet this test depending on its offshore use of gifts or government grants, see Disregarded amounts.

    Physical presence

    A registered charity has a physical presence in Australia if it is wholly in Australia, or it has a division, branch or sub-division in Australia.

    It does not have a physical presence in Australia if it is present in Australia only through an agent, or it merely owns investment property in Australia.

    Objectives and expenditure principally in Australia

    If a registered charity has a physical presence in Australia only, it must pursue its objectives and incur its expenditure principally in Australia.

    'Principally' means mainly or chiefly – less than 50% of expenditure is not principally.

    The pursuit of objectives in Australia can include things done offshore if they are only a means of pursuing those objectives. For example, sending employees to an offshore conference to aid their efficiency for the Australian objectives will be pursuing objectives in Australia.

    Example – physical presence test met

    An association is a registered religious charity. It is physically present only in Australia, but it also sends materials to missionaries overseas. As long as these activities and expenditure are not major, it will meet the physical presence test.

    End of example

    If your registered charity has a physical presence in Australia as well as another country, it is necessary to work out the extent to which it is physically present in Australia. Then it is only to that extent that the purposes and expenditure must be principally in Australia.

    This means a registered charity that, when viewed as a whole, does not principally have its purposes and expenditure in Australia can still meet the physical presence test.

    Example 1 – physical presence test met

    A society is a registered medical charity. It operates two clinics, one in Australia and one in Papua New Guinea. Each clinic operates separately, with general administration being done in Papua New Guinea. If the Australian activities and expenditure are mainly for the Australian clinic, it will meet the physical presence test.

    Example 2 – physical presence test not met

    VBN Welfare is a registered charity running support programs through four centres, one in Australia and three in Malaysia. All funding comes from Australia and a similar amount is spent on each centre. To the extent VBN Welfare has a physical presence in Australia, it is not principally pursuing its objectives and incurring its expenditure in Australia. It could only meet the physical presence test through the distribution of disregarded amounts.

    End of example

    Disregarded amounts

    A registered charity may still meet the in Australia test even if it does not, in fact, pursue its purposes and incur its expenditure principally in Australia to the extent that it has a physical presence in Australia. This will depend on its distribution of disregarded amounts.

    Disregarded amounts are amounts that your registered charity receives as:

    • gifts, including testamentary gifts (that is, gifts made under a will)
    • proceeds from raffles, dinners, charity auctions, jumble sales and similar fundraising activities
    • government grants.

    Distributions of these amounts are disregarded when working out where your registered charity pursues its objectives and incurs its expenses.

    We assume any offshore distributions are made first from any disregarded amounts that are able to be distributed offshore. The assumption does not apply if a disregarded amount cannot be distributed offshore. For example, government grants made only for use in Australia, or gifts of land physically in Australia, are not assumed to be distributed offshore.

    The effect of this assumption is that offshore distributions can be made, up to the total of these amounts, without affecting your entitlement to endorsement.

    Example 1 – disregarded amounts: impact on physical presence test

    A corporation provides religious instruction in Australia and New Zealand. The amounts it uses for the New Zealand teaching are never more than the disregarded amounts. Because the disregarded amounts are assumed to pay for the New Zealand activities, the corporation can still meet the physical presence test.

    Example 2 – disregarded amounts: impact on physical presence test

    Continuing the earlier example of VBN Welfare that runs support programs in Australia and Malaysia. If its disregarded amounts cover funding of the Malaysian programs, it could meet the physical presence test. This is because the disregarded amounts are assumed to be the first spent offshore.

    End of example

    Deductible gift recipient test

    Your registered charity will meet this test if it either:

    • has been endorsed as a deductible gift recipient (DGR) in its own right and not merely for a fund, authority or institution it operates
    • is listed by name in the tax law as a deductible gift recipient.

    If a registered charity is a DGR, it still needs to apply for endorsement to access income tax exemption.

    If a registered charity is endorsed as a DGR only for a fund or institution it operates, it does not meet the DGR test.

    Example – DGR test not met

    A charitable school is endorsed as a DGR for a school building fund it operates and deductible gifts can be made to its building fund. The school would not meet the DGR test because it is a DGR only for the operation of its building fund.

    End of example

    Prescribed by law test

    Your registered charity will meet this test if it is prescribed by name in the income tax regulations, and one of the following applies:

    • It is located outside Australia and is exempt from income tax in its country of residence.
    • It has a physical presence in Australia but incurs its expenditure and pursues its objectives principally outside Australia.

    A prescription in the regulations is a policy decision, not an administrative decision. The Government decides which charities will be prescribed, on a case-by case basis. You can send requests for prescription to us and we will forward them to the Treasurer for consideration.

    If your registered charity does not meet at least one of these three tests it is not entitled to be endorsed for income tax exemption.

    Governing rules condition

    Your registered charity will meet this condition if it complies with all the substantive requirements in your governing rules, being those rules that authorise the policy, actions and affairs of your registered charity.

    This means that a registered charity must operate only in a manner consistent with the rules that define the rights and duties of the registered charity including those that give effect to the object or purpose of the entity and those that relate to the NFP status of the entity.

    Breaches of procedural requirements, being those rules which prescribe the method or manner in which the rights and duties of the entity are carried into effect, and where applicable, enforced, such as an absence of a quorum at a meeting or missing a required lodgment date, will not prevent a registered charity from meeting this condition for income tax exemption.

    If your registered charity is new, it will meet this condition if it intends to comply with all the substantive requirements in its governing rules.

    If your registered charity does not meet this condition it is not entitled to be endorsed for income tax exemption.

    Income and assets condition

    Your registered charity will meet this condition if it applies its income and assets solely for the purpose or purposes for which it is established.

    If your registered charity is new, it will meet this condition if it intends to apply its income and assets solely for the purpose for which it is established.

    If your registered charity does not meet this condition it is not entitled to be endorsed for income tax exemption.

    GST charity concessions

    To be endorsed to access GST charity concessions your charity must:

    • have an ABN
    • be a registered with the ACNC.

    No additional tests are required to be passed for this endorsement.

    See also:

    Charity types and concessions

    FBT concessions

    Endorsement requirements apply for charities wanting access to FBT charity concessions, which are the FBT rebate for registered charities that are institutions and the FBT exemption for registered public benevolent institutions or registered health promotion charities.

    FBT rebate

    The FBT rebate (capped at $30,000 per employee for certain benefits ie. benefits that are not car parking, meal entertainment, entertainment facility leasing expenses - except for the period 1 April 2015 to 31 March 2017, which has a $31,177 cap per employee.) is only available to registered charities endorsed to access income tax exemption with the exception of those mentioned below.

    The FBT rebate is not available to:

    • Registered charities that are not institutions – see 'What is a registered charity that is an institution?'
    • Registered charities that are institutions of the Australian Government, a state or a territory (examples are public universities, public museums and public art galleries).
    • Registered public benevolent institutions and registered health promotion charities – these organisations may be eligible for the FBT exemption.

    What is a registered charity that is an institution?

    An institution can include an organisation established by will or instrument of trust, or its legal structure might be an incorporated association or instrument of trust or a corporation. Incorporation is not enough, on its own, to show a registered charity is an institution: its activities are also relevant.

    An institution is not:

    • a structure with a small and exclusive membership that is controlled and operated by family members and friends and carries out limited activities
    • a fund.

    A registered charity that is an institution will carry out activities to further its charitable purpose, while a registered charity that is a fund is established under an instrument of trust or a will to mainly manage or hold trust property.

    However, if the trustee mainly carries out activities (rather than mainly managing or distributing trust property), the fund will be treated as an institution.

    How does the FBT rebate work?

    Registered charities that are endorsed for the FBT rebate are entitled to have their FBT liability reduced by a rebate equal to 48% for the period 1 April 2014 to 31 March 2015, 49% for the period 1 April 2015 to 31 March 2017, and 47% from 1 April 2017 of the gross FBT payable (capped at $30,000 per employee for certain benefits – except for the period 1 April 2015 to 31 March 2017, which has a $31,177 cap per employee).

    If the total grossed-up value of certain fringe benefits provided to an individual employee is more than the $30,000 cap (or $31,177 for the period 1 April 2015 to 31 March 2017, a rebate cannot be claimed for the FBT liability on the excess amount.

    Example – endorsement and FBT rebate

    XYZ Inc is a registered charity that is an institution operating from 1 July 2000. Its enterprise agreements with its employees have included salary packaging arrangements since 1 January 2014. As XYZ Inc wants to access the FBT rebate for benefits it provides to its employees, it needed to seek endorsement for the FBT rebate from 1 January 2014.

    End of example

    FBT exemption

    The FBT exemption (capped at $30,000 per employee for certain benefits for example, benefits that are not car parking, meal entertainment, entertainment facility leasing expenses - except for the period 1 April 2015 to 31 March 2017, which has a $31,177 cap per employee) is only available to registered public benevolent institutions or registered health promotion charities that are endorsed to access the FBT exemption.

    Public and NFP hospitals and public ambulance services are eligible for FBT exemption (capped at $17,000 per employee for certain benefits for example, benefits that are not car parking, meal entertainment, entertainment facility leasing expenses - except for the period 1 April 2015 to 31 March 2017, which has a $17,667 cap per employee) and do not need to be endorsed to access the FBT exemption. However, if a hospital is controlled by an NFP society or association that is a charity, that NFP society or association must be a registered charity and endorsed for the FBT rebate to claim the FBT exemption.

    How does the FBT exemption work?

    If your registered charity has been endorsed for FBT exemption, the benefits it provides to its employees are exempt from FBT if the total grossed-up value of certain fringe benefits for each employee during the FBT year is $30,000 or less (or $31,177 or less for the period 1 April 2015 to 31 March 2017).

    The full capping threshold for certain benefits (for example, as relevant, $30,000 or $31,177 per employee) applies even if an employee was not employed by your organisation for the full FBT year. For example, if your registered charity employed someone from October to March, and the total grossed-up value of benefits it provided was $25,000, it would not have to pay FBT.

    If the total grossed-up value of certain fringe benefits provided to an individual employee is more than $30,000 (or $31,177 for the period 1 April 2015 to 31 March 2017), the employer will be liable for the FBT on the excess amount.

    See also:

    Fringe benefits tax – a guide for employers

    Last modified: 20 Jul 2015QC 46207