Income tax and fundraising
As an NFP organisation, whether you have to pay income tax on proceeds you receive from your fundraising activities or can claim a deduction for expenses incurred while fundraising depends on whether your organisation is exempt from income tax.
If your NFP organisation is exempt from income tax, you:
- do not pay income tax on proceeds you receive (your receipts) from your fundraising activities
- do not need to lodge a tax return unless we specifically ask you to do so.
Example – Registered charity's sausage sizzle
A registered charity endorsed as income tax exempt conducts a sausage sizzle to raise funds to help build a new hostel. None of the funds raised through the sausage sizzle will be assessable to the charity.
End of example
Only some NFP organisations are exempt from income tax and they come from these broad groups:
- registered charities
- community service organisations
- cultural organisations
- educational organisations
- employment organisations
- health organisations
- resource development organisations
- scientific organisations
- sporting organisations.
Organisations that are registered charities must be endorsed by us to be exempt from income tax. If your organisation falls in both a registered charity and non-charity group, it still needs endorsement.
Australian Charities and Not-for-profits CommissionExternal Link – for ACNC charity registration
Organisations that are not charities
Organisations that are not charities can self assess their entitlement to income tax exemption.
Being exempt from income tax means that your organisation will not be assessed on its receipts and it does not need to lodge an income tax return (unless specifically asked to).
Example – Income tax exempt club sells raffle tickets
A local hockey club that is exempt from income tax decides to raffle a hockey stick, bag and ball signed by a national hockey representative. The members of the club are each given a book of tickets to sell and proceeds are returned to the club. As the hockey club is exempt from income tax, none of the funds received through the sale of the raffle tickets will be assessable to the club.
End of example
Income tax exempt organisations
Organisations that are not exempt
NFP organisations that are not exempt are taxable and are generally treated as companies for income tax purposes whether or not they are incorporated. Non-profit companies have special rules for lodging tax returns and special rates of income tax.
When these organisations conduct fundraising activities the receipts may be treated as assessable income of the organisation. For NFP organisations that are taxable, examples of assessable receipts include:
- commissions received from vending machines
- proceeds from fundraising drives to the public (for example, sale of lamingtons, cakes or chocolates)
- amounts non-members pay to attend dinners, parties, dances or social functions organised by the organisation.
Example – Taxable NFP organisation's open day
A model engineers club that is a taxable NFP organisation holds an open day each month where members of the public can come and ride its model trains. To raise funds the club decides to install a soft drink vending machine. The club receives commission on the sale of drinks from the machine. The commission income will be assessable to the club.
End of example
If your organisation is not exempt from income tax, fundraising expenses will be tax deductible to the extent they are incurred in deriving your assessable income.
There are some other expenses that are deductible even if they were not incurred in deriving assessable income, for example, superannuation contributions for employees.
Example – Taxable NFP organisation
A German club that is a taxable NFP organisation holds an Oktoberfest to raise funds. The sales of food, drinks and souvenirs to members of the public will be assessable to the club. Expenses the club incurred in making these sales will be deductible.
End of example
Mutuality and taxable income (to calculate your organisation's taxable income)
As an NFP organisation, the tax treatment of income you make and expenses you incur while fundraising depends on whether you are a tax-exempt organisation. Only certain categories of NFP organisations are exempt from income tax.