Taxable organisations
Some not-for-profit (NFP) clubs, societies and associations are taxable organisations; they are not exempt from income tax. Examples of taxable NFP organisations include social clubs, certain business and professional associations, clubs whose main purpose is providing hospitality services for members, and political parties.
Follow the links below for information about taxable organisations and:
Income tax
If your NFP organisation is taxable, it may have to lodge tax returns and pay income tax.
To work out whether you need to lodge a tax return and what rate of tax you pay, you first need to determine if your organisation is a not-for-profit company or other taxable company. This distinction is important because not-for-profit companies have special arrangements for lodging tax returns and special rates of income tax.
Not-for-profit companies
If the organisation's constituent documents prohibit it from making any distributions, whether in money, property or otherwise, to its members, the organisation is treated as a not-for-profit company.
A not-for-profit company with taxable income of:
- $416 or less a year is not required to lodge a tax return if an Australian resident (unless specifically requested to do so)
- more than $416 a year is required to lodge a tax return for that year.
The income tax rates that apply to not-for-profit companies are as follows.
Income tax rates from 1 July 2016 – Not-for-profit companies that are small business entities:
Taxable income
|
Rate of tax
|
0 – $416
|
nil
|
$417 – $832
|
55% for every dollar over $416
|
$833 and above
|
27.5% on the whole amount of taxable income
|
Income tax rates from 1 July 2016 – Other not-for-profit companies
Taxable income
|
Rate of tax
|
0 – $416
|
nil
|
$417 – $915
|
55% for every dollar over $416
|
$916 and above
|
30% on the whole amount of taxable income
|
Income tax rates before 1 July 2016 – Not-for-profit companies that are small business entities
Taxable income
|
Rate of tax
|
0 – $416
|
nil
|
$417 – $863
|
55% for every dollar over $416
|
$864 and above
|
28.5% on the whole amount of taxable income
|
Income tax rates before 1 July 2016 – Other not-for-profit companies
Taxable income
|
Rate of tax
|
0 – $416
|
nil
|
$417 – $915
|
55% for every dollar over $416
|
$916 and above
|
30% on the whole amount of taxable income
|
Examples – income tax payable by non-profit companies
A not-for-profit company has taxable income of $380 in the 2016–17 income year. The income tax payable is nil. The tax rate is nil regardless of whether the organisation is a small business entity or not.
A not-for-profit company has taxable income of $900 in the 2016–17 income year. If it is a small business entity, the income tax payable is $247.50 and is calculated as $900 × 0.275. If it is not a small business entity, the income tax payable is $266.20 and is calculated as ($900 − $416) × 0.55.
A not-for-profit company has taxable income of $2,000 in the 2016–17 income year. If it is a small business entity, the income tax payable is $550 and is calculated as $2,000 × 0.275. If it is not a small business entity, the income tax payable is $600 and is calculated as $2,000 × 0.30.
End of exampleOther taxable companies
Clubs, societies and associations whose constituent documents do not prohibit them from making distributions to their members are treated as other taxable companies.
Other taxable companies must lodge a tax return each year, regardless of their taxable income. They have the same rates of tax applied as other companies.
There is no tax-free threshold for other taxable companies – they are taxable from the first dollar. That is, they are taxable on all levels of taxable income.
From 1 July 2016, the rate of tax is:
- 27.5% if the company is a small business entity
- 30% if the company is not a small business entity.
From 1 July 2015, the rate of tax is:
- 28.5% if the company is a small business entity
- 30% if the company is not a small business entity.
Before 1 July 2015 the rate is 30%.
The taxable income of a club, society or association is calculated in the same way as a company for tax purposes. However, you will need to know about how amounts received from members are treated. Briefly, under 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.
See also:
Capital gains tax
Capital gains tax (CGT) applies to NFP clubs, societies and associations that are treated as companies for income tax purposes in the same way as it does for other companies that pay income tax.
See also:
Pay as you go instalments
Pay as you go (PAYG) instalments is a system for paying amounts towards the expected tax liability on your business and investment income for the financial year.
See also:
Consolidations
Wholly-owned corporate groups may have the option of consolidating for income tax. Consolidation is optional but cannot be reversed. The consolidated group operates as a single entity for income tax purposes, lodging a single tax return and paying a single set of PAYG instalments.
When a group consolidates, it is a 'one in, all in' situation, in which all of the head company's eligible wholly-owned subsidiary members become part of the group.
There are specific rules about the types of entities that can be a head company or a subsidiary member of a consolidated group.
See also:
Not-for-profit clubs, societies and associations that are not exempt are taxable and may have to lodge tax returns and pay income tax. They also have to comply with any capital gains tax or PAYG instalment obligations.