Taxable income is calculated as the difference between an organisation's assessable income and deductions.
Taxable income = assessable income – allowable deductions
For examples of how to calculate taxable income, see Calculating taxable income.
Assessable income is, broadly speaking, the income derived by your organisation. It can also include some capital gains made on the disposal of assets.
Many amounts received by a NFP organisation are assessable income. Examples are bank interest and the proceeds from fundraising drives to the public.
Not all amounts of money or property your organisation receives will be assessable income. Receipts derived from mutual dealings with members of your organisation are not assessable income. This is due to the principle of mutuality, which we discuss in Mutuality principle.
Deductions are, broadly speaking, operating expenses that are incurred in earning assessable income. Examples of expenses incurred in deriving an organisation's assessable income are fees for earning bank interest and costs of fundraising drives to the public.
Your organisation may incur expenses in earning both assessable income and non-assessable income. The deduction your organisation will be able to claim will be limited to the extent the expenditure was incurred in deriving the assessable income. Therefore, your organisation may need to apportion its expenses.
For example, if only 30% of an organisation's bar sales are assessable, only 30% of expenses for running its bar will be deductible. Examples of other expenses that could be deductible but could require apportionment are printing, rent and insurance.
There are some deductions, however, that do not have to be incurred in deriving assessable income. They include tax-deductible gifts and superannuation contributions for employees.
Goods and services tax
The effect of goods and services tax (GST) on the calculation of taxable income differs depending on whether your organisation is registered for GST, or is required to be registered.
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