Non-profit organisations, including non-profit sporting organisations, are not automatically exempt from income tax.
The income tax law specifies the types of entities that can qualify for income tax exemption. If an organisation does not fall into one of these entity types, it will not qualify for the exemption.
There are more than 30 types of exempt entity. They include charitable institutions, non-profit hospitals, public educational institutions, registered employer associations, and non-profit societies established for the encouragement of music.
If your club is a charity, even though it may fall in another exempt entity type, it must be endorsed by the Australian Taxation Office (ATO) to access income tax exemption.
Briefly, a charity is an institution or fund established and operated solely for purposes that are charitable at law. These purposes are much broader than most people would think. Charitable purposes are the relief of poverty or sickness or the needs of the aged, the advancement of education, the advancement of religion, other purposes beneficial to the community, and the provision of child care services on a non-profit basis.
The vast majority of sporting clubs are not charities. However, a sporting club will be a charity if its encouragement of the game or sport is wholly integrated in carrying out purposes that are charitable.
Sporting clubs that are charities include:
- a club wholly integrated in a school or university and furthering its educational aims
- a club that primarily uses a game or sport to help rehabilitate the sick, and
- a club that primarily uses a game or sport to relieve disability.
The self-assessment system allows you to work out if your club meets the requirements of an income tax exempt category. You do not need to seek ATO endorsement of your club's status unless your club is a charity.
What are your responsibilities?
It is your responsibility to assess if your club is exempt from income tax or if it is taxable. If it is not exempt your club must lodge a tax return (subject to mutuality and the tax-free threshold for non-profit companies). The return must be signed, complete and correct. A taxable club may also want to lodge a tax return if losses arise to avail itself of a period of review under the review of self assessment (ROSA) legislation.
Even if someone else - including a tax agent - helps you to assess your income tax status or prepare your tax return and any related schedules, you are still legally responsible for the accuracy of your information.
What if you find your assessment is incorrect?
If you become aware that you have incorrectly assessed your club as income tax exempt or that your club's tax return is incorrect, you must contact us straight away.
Initiatives to complement self assessment
There are several systems and entitlements that complement self assessment, including:
- the private ruling system
- the amendment system (if you lodge tax returns and find you have left something out of your tax return), and
- your entitlement to interest on early payment or overpayment of a tax debt.
Do you need to ask for a private ruling?
If you are uncertain about how a tax law applies to your club's affairs, you can apply for a private ruling or contact us on 1300 130 248.
Lodge your tax return by the due date, even if you are waiting for the response to your application. You may need to request an amendment to your tax return once you have received the private ruling.
We publish edited versions of written binding advice on our website to enhance the integrity and transparency of the private ruling system. This advice is edited to protect the secrecy and privacy of the person or entity to which it was provided.