Capital gains tax and non-profit organisations
Capital gains tax applies to non-profit clubs, societies and associations that are:
- not exempt from income tax
- treated as companies for income tax purposes.
Non-profit clubs, societies and associations that are exempt from income tax are also exempt from capital gains tax.
For more information about how to treat income from your non-profit club, society or association, including how to work out your taxable income, refer to our guide Mutuality and taxable income (NAT 73436).
For more information about tax issues affecting your non-profit club, society or association, refer to our guide Tax basics for non-profit organisations.
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Capital gains tax (CGT) is a tax individuals or organisations pay on any capital gain they make and include in their annual tax return. There is no separate tax on capital gains - it is a component of income tax.
Your organisation is taxed on its net capital gain, included in its annual tax return, at the company tax rate (currently 30%).
Diagram: Working out your organisation's net capital gain
Your organisation's net capital gain
Your total capital gains for the year
Your total capital losses, including any net capital losses from previous years
Any CGT small business concessions
For more information about working out a net capital gain or loss, refer to the Guide to capital gains tax (NAT 4151).
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CGT issues affecting non-profit organisations include the:
- sale of assets used in carrying on its activities
- amalgamation of organisations
- availability of CGT concessions, such as the small business concessions.
Generally, your organisation makes a capital gain or loss if a CGT event happens.
Many CGT events are transactions involving a CGT asset. Other CGT events relate directly to capital receipts (capital proceeds).
The most common CGT event (known as CGT event A1) happens if your organisation disposes of an asset to someone else - for example, your organisation sells or gives away an asset. Examples of other CGT events are the:
- loss or destruction of an asset - the destruction may be voluntary or involuntary
- cancellation, surrender or redemption of shares
- receipt of a payment for creating a right in another entity
- receipt of a lease premium.
Special rules apply when working out gains and losses from depreciating assets.
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If your organisation uses a depreciating asset wholly for a taxable purpose:
- any gain it makes on the asset's disposal is treated as ordinary income
- any loss it makes on the asset's disposal is treated as a deduction.
If a depreciating asset is used both for a taxable purpose and for a non-taxable purpose, a capital gain or loss may also arise on disposal of the asset. The amount of the capital gain or loss is the difference between the amount paid for the asset (its cost) and the amount received for it (its termination value) that is attributable to the asset's use for a non-taxable purpose.
Example: Working out a loss from a depreciating asset
A non-profit society sells a computer for $600. The computer cost $1,000 when it was purchased. It had been used 40% of the time for non-taxable member purposes. At the time of the sale, the computer's adjustable value was $700.
Therefore, a capital loss of $160 arises on the disposal of the computer. This is 40% (the non-taxable member proportion) of the difference between computer's termination value and its original cost.
The society can also claim a deduction of $60. This is 60% (the taxable or non-member proportion of use) of the balancing adjustment amount - the difference between the computer's termination value and its adjustable value at the time of its sale.
For depreciating assets that are used wholly for a non-taxable purpose, the difference between the asset's termination value and its cost can be a capital gain or loss.
For some depreciating assets, any capital gain or loss arising will be disregarded even though the asset is used for a non-taxable purpose.
If your organisation has disposed of an asset that has been depreciated, refer to the Guide to depreciating assets(NAT 1996).
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For a CGT event involving an asset, a capital gain or loss is broadly the difference between the amount paid for the asset and the amount received for it. In some cases, the amount paid or received for an asset is taken to be its market value. Incidental costs involved with acquiring and disposing of the asset, such as legal fees and commissions, can also be taken into account.
For other CGT events, a capital gain or loss is generally the difference between the amount received and the costs involved with the transaction.
If your organisation's total capital losses for the income year are more than its total capital gains, the difference is a net capital loss for the year. The net capital loss can be carried forward to later income years to be deducted from future capital gains.
Generally, any capital gain or loss from an asset that was acquired before 20 September 1985 (pre-CGT assets) is disregarded.
Although receipts from an organisation's members are not treated as ordinary income (the principle of mutuality), that does not mean that an asset purchased with those receipts is exempt from CGT.
Example: Asset purchased with member's funds
An incorporated association owned a property purchased with contributions made by the members. The property was used and maintained as an administration centre to collect member subscriptions and to administer activities for the benefit of members.
A capital gain arising on sale of the property is not exempt from CGT.
The CGT discount (which enables some capital gains to be reduced by up to 50%) is not available to companies. Non-profit clubs, societies or associations are treated as companies for tax purposes so the CGT discount cannot reduce any capital gains your organisation may make. However, the small business 50% active asset reduction may apply to your organisation - see 'Do CGT small business concession apply?' below.
Your non-profit organisation may be entitled to the following CGT small business concessions:
- the small business 50% active asset reduction - which reduces a capital gain by 50%
- the small business rollover - which defers a capital gain for a minimum of two years if a replacement asset is acquired or expenditure is incurred in making improvements to existing assets.
To qualify, your organisation must meet one or more of the following conditions:
- be a small business entity
- not carry on business (other than as a partner) but the CGT asset is used in a business carried on by a small business entity that is an affiliate or is connected with it (passively-held assets)
- be a partner in a partnership that is a small business entity, and the CGT asset is
- interest in a partnership asset (partnership assets), or
- an asset your organisation owns that is not an interest in a partnership asset (partner's assets)
- meet the maximum net asset value test - the total net market value of the assets of your organisation and certain other entities are $6 million or less just before the CGT event that results in the capital gain.
CGT exemptions and rollovers can reduce the amount of a capital gain or loss or defer the capital gain or loss. Examples include:
- an exemption for cars and motorcycles
- a rollover if a statutory licence is renewed or extended
- a rollover if an asset is compulsorily acquired
- a rollover if an entity incorporates under the Corporations Act or an equivalent foreign law.
Exemptions and rollovers may apply to your organisation if it meets the relevant conditions.
There may be CGT consequences if your organisation changes status, or your organisation may be eligible for rollover.
If you are unsure if your organisation is eligible for a rollover, you should seek advice from us or a professional adviser.
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There can be CGT consequences if organisations amalgamate.
For example, capital gains and losses may arise if two organisations merge to form a new organisation, or if one organisation is absorbed into another.
The CGT consequences resulting from amalgamations may be different depending on which state or territory the organisations are incorporated in.
The winding-up of organisations can also result in capital gains and losses.
For more information about capital gains tax, refer to the following publications:
For more information about non-profit organisations:
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