CharityPack (current to 19 June 2003)

Introduction

This document has been archived. It is current only to 19 June 2003.

A taxation guide for charitable institutions and funds

Publications about taxation & the non-profit sector

CharityPack is for charities.

CharityPack:

• helps you work out if you are a charity
• explains the new endorsement arrangements
• tells you how to apply for endorsement as an income tax exempt charity (ITEC), and
• outlines ABN, GST, PAYG, FBT and other taxes and obligations for charities.

ClubPack is for clubs, societies and associations which are not charities.

ClubPack:

• helps you work out if your organisation is exempt from income tax
• explains your obligations if your organisation is not income tax exempt, and
• outlines ABN, GST, PAYG, FBT and other taxes and obligations for clubs, societies and associations.

GiftPack is for organisations that wish to receive income tax deductible gifts.

GiftPack explains:

• who can receive tax deductible gifts
• the new endorsement arrangements
• what sorts of gifts are deductible, and
• what donors have to do to claim deductions for their gifts.

A range of fact sheets and booklets including Charitable, Religious and Non-profit organisations & The New Tax System - are also available from sources listed on the back cover of this guide.

The information in this guide is current at April 2000.

Please get help from the ATO or a professional tax practitioner if you feel this guide does not fully cover your circumstances. We regularly revise our publications to take account of changes to the law and you should make sure that this edition is the latest. Any changes or developments occurring between editions will be explained in the CharityPack Updater which you should request from the ATO.

As part of our commitment to producing accurate publications, a taxpayer will not be subject to penalties if it is demonstrated that a tax claim is based on wrong information contained in this guide. However, interest could be payable depending on the circumstances of the case.

About this guide

CharityPack has been prepared by the Australian Taxation Office (ATO) to help charities understand their eligibility to income tax concessions. It also gives an overview of some other taxes and obligations.

How will this guide help you?

CharityPack helps you work out if you are a charity. It explains:

• whether you are entitled to endorsement as an income tax exempt charity
• how to apply for endorsement, and
• some other tax entitlements and obligations.

Unsure whether you are a charity?

You will need to check appendix 1 - Are you a charity? which gives a detailed explanation of charities and lists examples of bodies that fall into the categories of charities and those which do not.

Charities are altruistic institutions and funds set up to benefit the community through:

• the relief of poverty or sickness or the needs of the aged
• the advancement of education
• the advancement of religion, or
• other purposes beneficial to the community.

What if you are not a charity?

If you are a non-profit organisation but not a charity, you may be entitled to income tax exemption under other arrangements and should refer to ClubPack (see description).

Endorsement of charities

To be exempt from income tax, charities will need to be endorsed by the ATO.

Endorsement is a two step process. First, you must register for an Australian Business Number (ABN) as soon as possible. Second, you need separate endorsement as an income tax exempt charity (ITEC).

An application form for endorsement will be sent to you if you answered Yes at question 10 on the ABN registration form.

Charities that already have an ABN and did not indicate their charity status on the ABN application will need to contact the ATO by phoning 13 24 78 to obtain an application form for ITEC endorsement.

Organisations that have previously received written confirmation from the ATO that they are charities must still apply for ITEC endorsement.

To see if you are entitled to ITEC endorsement, check Are you entitled to ITEC endorsement?. How to apply for endorsement and your rights and obligations once endorsed are explained in Income tax - ITEC endorsement.

What about gift deductibility?

ITEC endorsement does not entitle you to receive income tax deductible gifts. Separate endorsement as a deductible gift recipient (DGR) is required by most organisations before they obtain this status. Different criteria apply to DGR status and most charities do not qualify. For further information on gift deductibility see the publication GiftPack (see description).

What will The New Tax System mean for charities?

The New Tax System starts on 1 July 2000. It has special features for charities:

• enhancing certainty for income tax exemption
• providing a single identifier for dealings with government
• giving $65 million to help charities make the transition to GST
• making non-commercial supplies GST-free
• refunding GST paid on inputs, and
• simplifying tax withholding arrangements.

Need more information?

If you have any questions after reading this guide, or you need more information, you can contact the sources listed on the back cover of this guide.

Chapter 1 Income tax are you entitled to ITEC endorsement?

This document has been archived. It is current only to 19 June 2003.

In this chapter we explain:

• the need to be endorsed as an income tax exempt charity
• charitable institutions and charitable funds, and
• requirements to be endorsed.

To be endorsed as exempt from income tax a charity must:

• have an Australian Business Number (ABN)
• be entitled to be endorsed (explained in this chapter), and
• apply to the ATO for endorsement.

The requirements for entitlement are different for charitable institutions and charitable funds. This chapter explains:

• the distinction between charitable institutions and charitable funds
• the requirements for charitable institutions to be entitled, and
• the requirements for charitable funds to be entitled.

Charities are not automatically exempt from income tax. From 1 July 2000 there is a new system of endorsement which means charities must apply to the ATO for exemption. If the ATO gives you notice that you are endorsed as an income tax exempt charity (ITEC):

• you are exempt from income tax, and
• you do not need to lodge income tax returns, unless specifically requested.

This chapter helps you work out whether your charity is entitled to endorsement. For charities that are entitled, the way to apply for endorsement is explained. Organisations that have previously received written confirmation from the ATO that they are charities must still apply for ITEC endorsement.

The income tax consequences of being endorsed as an ITEC are explained. Charities that are not endorsed as ITECs are covered.

If you are not sure whether your organisation is a charity you should first go to appendix 1 - Are you a charity?.

Endorsement

To be endorsed as an ITEC you must have an Australian Business Number (ABN) (see page 22). This must be the ABN of the entity itself. An ABN held for GST purposes by a non-profit sub-entity is not sufficient.

You must also meet other requirements to be entitled to endorsement. There are different requirements for:

• charitable institutions, and
• charitable funds.

The next section helps you work out if you are a charitable institution or a charitable fund.

Charitable funds that cannot be endorsed are:

• charitable funds established by will from 1 July 1997 which are not established in Australia, and
• charitable funds established by instrument of trust which are not established in Australia.

These charitable funds will only be exempt from income tax if they fall in some other income tax exempt category and meet the special conditions for it. Most are likely to be taxable and so must lodge income tax returns.

All other charities must be endorsed to be exempt from income tax. They are:

• charitable institutions
• charitable funds established by will before 1 July 1997
• charitable funds established in Australia by will on or after 1 July 1997, and
• charitable funds established in Australia by instrument of trust.

The requirement for endorsement applies even if the institution or fund also falls in some other category of income tax exempt entity. Other categories include religious institutions, scientific institutions and public educational institutions.

Assume a charitable institution is also a religious institution. To be exempt it must be endorsed as an income tax exempt charity.

Are you a charitable institution or charitable fund?

Charitable institution

You will be a charitable institution if you are an establishment, organisation or association that is instituted to advance or promote charitable purposes. Charitable purposes are explained in appendix 1 - Are you a charity?

Types of organisations that may be charitable institutions include welfare agencies, churches, public libraries, parents and citizens associations, refuges and research institutes.

A charitable institution can include an organisation established by will or instrument of trust, or its legal structure might be an unincorporated association or a corporation.

Incorporation is not enough, on its own, to show an organisation is an institution: its activities are also relevant.

A charitable institution would not usually include an organisation that is established, controlled and operated by family members and friends.

The object of an association is to advance charitable education. Its members are two engineers and their families. Funding comes from the members, and investments include leases made to the two engineers. Profits are used to make charitable distributions. The association is not a charitable institution.

Charitable fund

To be a charitable fund you must be established under an instrument of trust or a will. Also, you must mainly:

• manage trust property, and/or
• hold trust property to make distributions to other entities or persons.

In contrast, if you mainly carry on charitable activities you will be treated as a charitable institution and not as a charitable fund.

A charity was established by a deed of trust and manages assets to pay scholarships from the trust's income. It is a charitable fund. A charity was established by a deed of trust and operates a hostel for the homeless. It is more than simply a fund that is being administered for a charitable purpose.

It is a charitable institution.

The following are common types of charitable fund:

• Holding property for charitable use a charity that holds and maintains a church building and the surrounding land for use for religious worship and related purposes.
• Distributions to other charities a charity that manages an investment portfolio with returns being distributed to educational charities which apply for grants.
• Distributions to persons in need a charity that solicits donations and uses them to make grants to help disabled persons.
• Distributions for other charitable purposes a charity that holds income-producing property and solicits donations and uses them to pay for the construction and maintenance of buildings for cultural charities.

Requirements to be entitled - charitable institutions

Charitable institution tests

A charitable institution can be entitled to endorsement if it meets at least one of three tests:

• it has a physical presence in Australia and, to the extent it has a physical presence in Australia, it pursues its objectives and incurs its expenditure principally in Australia
• it is a deductible gift recipient, or
• it is prescribed by law in the income tax regulations, and
  • it is located outside Australia and is exempt from income tax in its country of residence, or
  • it has a physical presence in Australia but incurs its expenditure and pursues its objectives principally outside Australia.

Physical presence in Australia test

This test has two elements:

• does the charitable institution have a physical presence in Australia? and
• to the extent the charitable institution has a physical presence in Australia, does it pursue its objectives and incur its expenditure principally in Australia?

If the charitable institution does not meet these requirements, it may still satisfy the test see Disregarded amounts.

Physical presence

A charitable institution has a physical presence in Australia if it is wholly in Australia, or it has a division, branch or sub-division in Australia.

It does not have a physical presence in Australia if it is present in Australia only through an agent, or it merely owns investment property in Australia.

Objectives and expenditure principally in Australia

If a charitable institution has a physical presence in Australia only, it must pursue its objectives and incur its expenditure principally in Australia.

Principally means mainly or chiefly. Less than 50 per cent is not 'principally'.

The pursuit of objectives in Australia can include things done offshore if they are only a means of pursuing those objectives. For example, sending employees to an offshore conference to aid their efficiency for the Australian objectives will be pursuing objectives in Australia.

Minor offshore expenditure is acceptable.

An association is a religious charity. It is physically present only in Australia, but it also sends materials to missionaries overseas. As long as these activities and expenditure are not major, it will meet the physical presence test.

If the charitable institution has a physical presence in Australia as well as another country, it is necessary to work out the extent to which it is physically present in Australia. Then it is only to that extent that the purposes and expenditure must be principally in Australia. This means that a charitable institution which, when viewed as a whole, does not principally have its purposes and expenditure in Australia can still meet the physical presence test.

A society is a medical charity. It operates two clinics, one in Australia and one in Papua New Guinea. Each clinic operates separately, with general administration being done in PNG. If the Australian activities and expenditure are mainly for the Australian clinic it will meet the physical presence test. VBN Welfare runs support programs through four centres, one in Australia and three in Malaysia. All funding comes from Australia and a similar amount is spent on each centre. To the extent VBN Welfare has a physical presence in Australia, it is not principally pursuing its objectives and incurring its expenditure in Australia. It could only meet the physical presence test through the disregarded amounts.

Disregarded amounts

A charitable institution may still meet the physical presence test even if it does not, in fact, pursue its purposes and incur its expenditure principally in Australia, to the extent it has a physical presence in Australia. This will depend on its distributions of disregarded amounts.

Disregarded amounts are amounts that the charitable institution receives as:

• gifts, including testamentary gifts
• proceeds from raffles, dinners, charity auctions, jumble sales and similar fund-raising activities, or
• government grants.

It is assumed that any offshore distributions are made first from any disregarded amounts that are able to be distributed offshore. If a disregarded amount cannot be distributed offshore, the assumption does not apply to it. For example, government grants made only for use in Australia and gifts of land physically in Australia are not assumed to be distributed offshore.

The effect of making this assumption is that offshore distributions can be made up to the total of these amounts without jeopardising entitlement to endorsement.

A corporation provides religious instruction in Australia and New Zealand. The amounts it uses for the New Zealand teaching are never more than the disregarded amounts. Because the disregarded amounts are assumed to pay for the New Zealand activities, the corporation can still meet the physical presence test. Continuing the earlier example of VBN Welfare which runs support programs in Australia and Malaysia: if its disregarded amounts substantially cover the funding of the Malaysian programs, it could meet the physical presence test. This is because the disregarded amounts are assumed to be the first spent offshore.

Deductible gift recipient test

Deductible gift recipients (DGRs) are entities to which donors can make income tax deductible gifts. They are explained in detail in the ATO publication GiftPack which is available by phoning 13 24 78.

From 1 July 2000 DGRs:

• are listed by name in the income tax legislation, or
• have received a notice from the ATO stating they have been endorsed as DGRs.

A charitable institution is entitled to ITEC endorsement if it is a DGR, but will still need to apply separately.

However, if the charitable institution is endorsed as a DGR only for a fund or institution that it operates, it does not meet the DGR test. For example, a charitable school could be endorsed as a DGR for a building fund that it operates. Deductible gifts could be made to its building fund. Because the charitable school would be a deductible gift recipient only for the building fund, the school would not meet the DGR test.

Endorsement of DGRs applies only from 1 July 2000. Accordingly, for a charitable institution to work out, in the period up to 30 June 2000, whether it will meet the DGR test, it can treat itself as a DGR if:

• it reasonably considers itself to be entitled to endorsement as a DGR
• its endorsement as a DGR is for the entity in its own right (and not only for a fund or institution that it operates), and
• it has lodged an application for that endorsement.

If its application for endorsement as a DGR is later rejected it will need to determine whether it meets the physical presence test or the prescribed by law test for endorsement as an ITEC. If it does not meet either test, it must notify the ATO that it is not entitled. The ATO will then revoke its endorsement as an ITEC.

Prescribed by law test

Charitable institutions can be prescribed by name in the income tax regulations. The Government decides which institutions will be prescribed. At the time of publication only five institutions and their members had been prescribed as charitable institutions. Applications for prescription can be sent to the ATO which will forward them to the Government for consideration.

The prescribed charitable institutions do not need to be endorsed to retain their exemption from income tax as long as they satisfy the requirements for exemption. They can apply for endorsement if they choose.

Conclusion

If you have worked out that you are entitled to be endorsed. It explains how to apply for endorsement. If you are not entitled to be endorsed, you should read, Income tax - if you are not an ITEC.

Requirements to be entitled charitable funds

Charitable fund tests

To be entitled to endorsement, all charitable funds must be applied for the purposes for which they were established. This is explained Applied for its purposes. Some funds will also need to meet further tests. This will depend on whether the charitable fund was:

• established by will before 1 July 1997, and if so what assets it has received since that date, or
• established in Australia.

The following flowchart summarises the conditions charitable funds must meet to be entitled.

Flowchart charitable funds requirements to be entitled

Applied for its purposes

To be entitled to endorsement, a charitable fund must be applied for the purposes for which it was established. If it is not being applied for those purposes, it is not entitled to endorsement.

If a charitable fund uses its property and income only and fully for its charitable purposes it will meet this requirement.

Examples where a charitable fund is not being applied for its purposes include:

• where distributions are made for non- charitable purposes, for example money is given to an associate of the trustee
• where trust property is being invested in ways to confer private benefits on particular persons, for example a trust asset is being leased to a business associate of a trustee at an uneconomic rent, or
• where income is being accumulated excessively, for example no income has been distributed and the accumulation is not under a particular plan designed to better serve the charitable purposes.

Charitable funds not established by will before 1 July 1997

To be endorsed, charitable funds that were not established by will before 1 July 1997 must be established in Australia.

To be endorsed, these charitable funds must meet at least one of four additional tests. These tests are explained The four tests.

Charitable funds established by will before 1 July 1997

If a charitable fund is established by will before 1 July 1997 its entitlement to endorsement will depend on the assets it has received from 1 July 1997.

If, on or after 1 July 1997, a charitable fund:

• has paid real and substantial value for all new assets it received, and
• has not received any assets under a will,

it will be entitled to endorsement. This is provided it has an ABN and is being applied for the purposes for which it was established.

Other charitable funds are deemed to consist of two separate trusts, called an 'old trust' and a 'new trust'.

The 'new trust' consists of the following property:

• assets given to the charitable fund after 30 June 1997 for which it did not pay valuable consideration
• assets becoming part of the charitable fund under a will after 30 June 1997
• assets received in substitution for those assets, and
• any income derived from these assets.

Valuable consideration is a payment of real and substantial value.

The 'old trust' consists of the remainder of the charitable fund. Effectively this will be all of the fund as at 30 June 1997, and property acquired from that date which:

• is received in substitution for assets held before 1 July 1997
• was given in return for valuable consideration, or
• is income derived from that property.

The charitable fund will need to prepare accounts for each of the 'old trust' and 'new trust'. Costs will reduce the part of the fund to which they relate. Charitable distributions can be streamed from the 'old trust' or the 'new trust', unless the facts indicate otherwise.

A foundation was established by will on 1 January 1995. At 30 June 1997 it held cash at bank. After that date it received:

• land under a will
• rent on letting the land, and
• interest on cash at bank.

It made distributions of money to other charities each year. The foundation is deemed to be:

• the 'new trust' comprising the land, rents and any interest on the rents, reduced by the distributions but not more than the amount of rent and interest it has available for distribution, and
• the 'old trust' comprising the remainder of the trust property.

The 'old trust' is entitled to endorsement, provided its charitable fund has an ABN and is being applied for the purposes for which it was established.

The 'new trust' has to meet additional tests as set out at The four tests. The charitable fund, of which the 'new trust' is a part, must have an ABN. The 'new trust' does not need a separate ABN.

If the 'new trust' meets the additional tests, the whole charitable fund will effectively be entitled to endorsement.

The four tests

There are special requirements for charitable funds not established by will before 1 July 1997 and 'new trusts' which are applied for their purposes. They must meet at least one of four tests. The tests are:

Australian purposes

It incurs its expenditure principally in Australia, and pursues its purposes solely in Australia, and has done so at all times since 1 July 1997.

Deductible gift recipient

It is a deductible gift recipient.

Australian distribution

It distributes solely, and has at all times since 1 July 1997 distributed solely, to charities that, to the best of the trustee's knowledge, are:

• located in Australia
• incur their expenditure principally in Australia, and
• pursue their purposes solely in Australia.

Gift distribution

It distributes solely, and has at all times since 1 July 1997 distributed solely, to charities that, to the best of the trustee's knowledge, are DGRs.

Australian purposes test

This test has two elements. The charitable fund or 'new trust' must:

• pursue its purposes solely in Australia, and have done so at all times since 1 July 1997, and
• incur its expenditure principally in Australia, and have done so at all times since 1 July 1997.

If the charitable fund or 'new trust' does not meet these requirements, it might still satisfy the Australian purposes test see Disregarded amounts.

The charitable fund or 'new trust' must pursue its purposes exclusively in Australia. However, carrying out activities outside Australia can be acceptable if those activities are only for the sake of pursuing the purposes in Australia. For example, sending an employee to an overseas conference would be acceptable if it was to improve the efficiency of the Australian operations.

The incurring of expenditure must be principally in Australia. Less than 50 per cent is not 'principally'. Expenditure includes distributions made for charitable purposes.

WER Trust holds and maintains church property. It manages three sites in Australia and one in the Solomon Islands. It does not meet the Australian purposes test because it does not pursue its purposes solely in Australia.

For the requirement that the test be met at all times since 1 July 1997 see At all times since 1 July 1997.

Disregarded amounts

If a charitable fund or 'new trust' does not, in fact, pursue its purposes solely and incur its expenditure principally in Australia, it might still, in some situations, meet the Australian purposes test. This will depend on its distributions of disregarded amounts. For a description, see the box below.

Distributions of some amounts are disregarded when working out whether a charitable fund or 'new trust' meets the:

• Australian purposes test
• Australian distribution test, or
• gift distribution test.

Distributions are ignored when they are of amounts that the charitable fund or 'new trust' received as:

• gifts, including testamentary gifts
• proceeds from raffles, dinners, charity auctions, jumble sales and similar fundraising activities, or
• government grants.

These are the disregarded amounts. The disregarding of these distributions has different implications for the different tests.

It is assumed that any offshore distributions are made first from disregarded amounts that are able to be distributed offshore. If a disregarded amount cannot be distributed offshore, the assumption does not apply to it.

For example, government grants made only for use in Australia and gifts of land physically in Australia are not assumed to be distributed offshore.

The effect of making this assumption is that offshore distributions can be made up to the total of these amounts without jeopardising entitlement to endorsement.

A fund provides educational scholarships. The students are in Australia and New Zealand. The amounts it uses for the New Zealand scholarships are never more than the disregarded amounts that are available for offshore distribution. Because the disregarded amounts are assumed to pay for the New Zealand scholarships, the fund is taken to be only providing scholarships for students in Australia. Given that this is solely pursuing purposes in Australia, the fund can still meet the Australian purposes test. Continuing the example of the WER Trust that manages church property: the fact that distributions might be less than the disregarded amounts will not help it meet the Australian purposes test. Its holding and managing of property in the Solomon Islands indicates its purpose is not solely in Australia, irrespective of the disregarded amounts.

Deductible gift recipient test

If a charitable fund is a deductible gift recipient (DGR) it meets this test. DGRs are entities to which donors can make income tax deductible gifts. They are explained in detail in the ATO publication GiftPack. Following is a brief explanation. DGRs:

• are listed by name in the income tax legislation, or
• have received a notice from the ATO stating they have been endorsed as DGRs.

The new system of endorsement of DGRs takes effect from 1 July 2000. Until then, if a charitable fund considers it will meet the deductible gift recipient test, it can treat itself as a deductible gift recipient if it has lodged an application for DGR endorsement.

If its application for endorsement as a DGR is subsequently rejected, the charity will need to determine whether it meets the Australian purposes test, the Australian distribution test, or the gift distribution test. If it does not meet any of these tests, it must notify the ATO that it is not entitled. The ATO will then revoke its endorsement as income tax exempt.

Australian distribution test

To meet this test the charitable fund or 'new trust' must distribute solely, and at all times since 1 July 1997 have distributed solely, to charities that, to the best of the trustee's knowledge:

• are located in Australia, and
• pursue their purposes solely in Australia, and
• incur their expenditure principally in Australia.

If the charitable fund or 'new trust' does not meet these requirements it might still satisfy the test see Disregarded amounts.

All distributions must be made to charities. Distributions do not include reasonable payments for goods and services received, for example, insurance or administration and accounting costs.

The charitable recipients must be located in Australia. They do not need to be located exclusively in Australia, but must have an enduring and substantial presence. If they pursue their purposes offshore they will not be acceptable recipients. For example, a charity spreading the gospel in Australia and Papua New Guinea would not be acceptable. The recipient must also incur its expenditure principally in Australia.

These requirements are 'to the best of the trustee's knowledge'. It will be sufficient if the trustee receives written confirmation from the recipient, and the trustee does not have reasonable grounds for doubt.

A charitable fund or 'new trust' could also satisfy this requirement through suitably worded questions in the forms through which applicants apply for funding.

However, if the answers to these questions are unsatisfactory, and the trustee still distributes to the applicant, its entitlement to endorsement may be jeopardised.

A fund is set up to give money to scientific charities. Its application procedures exclude all non-acceptable applicants. The fund can meet the Australian distribution test. The RTY Foundation does not get information from recipients about their location, purposes and expenditure. One of the recipients in fact funds projects in Australia and the Philippines. The Foundation's trustee has asked to not receive the recipient's newsletters and has asked to be removed from the recipient's mailing list. A claimed lack of knowledge by the trustee would not be accepted in these circumstances. If the Foundation is to meet the Australian distribution test it will only be through the disregarded amounts.

For the requirement that the test be met at all times since 1 July 1997 see At all times since 1 July 1997.

Disregarded amounts

If a charitable fund or 'new trust' does not, in fact, distribute solely in the required ways, it might still meet the test. This will depend on its distributions of disregarded amounts.

It is assumed that distributions to charities that are not located in Australia or not solely pursuing their purposes in Australia are made first from any disregarded amounts that can be distributed from them. If a disregarded amount cannot be distributed to them, the assumption does not apply to it. For example, government grants that must be used for a specified purpose may not be assumed to be distributed to them.

The effect of making this assumption is that distributions can be made to other charities up to the total of these amounts without jeopardising entitlement to endorsement.

A trust provides funding for educational charities. It uses its investment income to fund Australian charities and it funds Canadian charities up to the amount of the gifts it receives. As long as the distributions to Canadian charities do not exceed the amount of gifts that it could distribute offshore, the trust can still meet the Australian distribution test.

Continuing the earlier example of RTY Foundation which made a distribution to a charity that funds projects in the Philippines: if the distribution to this charity is less than the disregarded amounts it has available for offshore distribution, it can still meet the Australian distribution test.

If a charitable fund or 'new trust' fails to meet the:

• Australian purposes test
• Australian distribution test, or
• gift distribution test

at any time from 1 July 1997, it cannot meet that test at any time in the future. Changes of activity cannot overcome an earlier failure to meet the tests. A charitable fund established after 1 July 1997 would have to meet the test at all times that it has existed. It could not, of course, have met the test before it existed. If a charitable fund or 'new trust' ceases to meet a test and does not meet any other test, it ceases to be entitled to endorsement. It must notify the ATO so that its endorsement can be revoked. The ATO does not have any discretion to ignore a cessation of entitlement.

Gift distribution test

To meet this test the charitable fund or 'new trust' must distribute solely, and at all times since 1 July 1997 have distributed solely, to charities that are, to the best of the trustee's knowledge, deductible gift recipients (DGRs).

If the charitable fund or 'new trust' does not meet these requirements it might still satisfy the test see Disregarded amounts.

For distributions before 1 July 2000, gift deductible bodies approved by the ATO were listed on the ATO web site at www.ato.gov.au.

From 1 July 2000 DGRs must be endorsed by the ATO. The only exceptions are those funds listed by name in the income tax legislation.

All endorsed DGRs and others that have an ABN will have their gift status entered on the Australian Business Register (ABR). If an endorsed DGR is endorsed only for a fund, authority or institution that it operates, the distribution must be made for that fund, authority or institution. A full description of DGRs is included in the ATO publication GiftPack which is available by phoning 13 24 78.

If the charitable recipients of the distributions are not, in fact, DGRs, provided the trustee has exercised reasonable care and was of the genuine belief that the recipient was a DGR, the requirement will be satisfied. A charitable fund or 'new trust' can satisfy itself of the recipient's status :

• by checking the ABR to see if the recipient is a DGR
• through suitably worded questions in its application forms for funding, or
• by checking the status of recipients with the ATO by phoning 13 24 78.

Otherwise, if distributions are in fact made to non-acceptable recipients, the charitable fund or 'new trust' will only meet the gift distribution test through the Disregarded amounts.

A fund has procedures in place to always check that applicants for funding are charitable DGRs. Even if the trustee is misled by the information received and some of the applicants turn out not to be deductible gift recipients, the fund will still meet the gift distribution test because the trustee has acted to the best of its knowledge.

For the requirement that the test be met at all times since 1 July 1997, see At all times since 1 July 1997.

Disregarded amounts

If a charitable fund or 'new trust' does not, in fact, distribute solely in the required ways, it may still meet the test. This will depend on its distributions of 'disregarded amounts' (see an explanation What are disregarded amounts?).

It is assumed that distributions to charities that are not DGRs are made first from any disregarded amounts that can be distributed to them. If a disregarded amount cannot be distributed to them the assumption does not apply. For example, government grants that must be used for a specified purpose may not be assumed to be distributed to them.

The effect of making this assumption is that distributions can be made to other charities up to the total of these amounts without jeopardising entitlement to endorsement.

A foundation provides funding for various charities. It uses its investment income to make distributions to deductible gift recipients. It also funds some educational charities which are not endorsed as deductible gift recipients. If the distributions to the educational charities are less than the disregarded amounts it receives, it can still meet the gift distribution test.

Conclusion

If you have worked out that you are entitled to be endorsed, see Applying for ITEC endorsement. It explains how to apply for endorsement. If you are not entitled to be endorsed, you should read Income tax if you are not an ITEC.

Need more information?

If you have any queries after reading this guide, or if you need more information, please contact the information sources listed on the back cover of this guide.

Chapter 2 - Income tax - ITEC endorsement

This document has been archived. It is current only to 19 June 2003.

In this chapter we explain:

• how you can apply for endorsement as an income exempt charity (ITEC)
• the income tax consequences once you are endorsed as an ITEC, and
• your income tax obligations if you are not endorsed as an ITEC or if your endorsement is revoked.

Applying for ITEC endorsement

• To be endorsed as an ITEC you will need an Australian Business Number (ABN) and you must apply to the ATO using the standard application form.
• The ATO will notify you of your endorsement status.
• If the ATO refuses to endorse your charity, or takes too long processing your application, you can have the matter reviewed.
• If you want your donors to get income tax deductions for their gifts, you will need to apply for a separate endorsement as a deductible gift recipient (DGR).

Only charities with an ABN can seek ITEC endorsement. The ABN registration form will ask the applicant if it is a charitable institution or fund. Applicants who answer 'Yes' to this question will automatically be sent an Application for endorsement as an Income Tax Exempt Charity. Charities should apply for ITEC endorsement on this form using the accompanying instructions. If a charity is entitled, it should lodge the completed application with the ATO.

Charities that already have an ABN, and did not indicate their charity status on the ABN application, will need to contact the ATO for an application form for ITEC endorsement.

Organisations that have previously received written confirmation from the ATO that they are charities must still apply for ITEC endorsement.

The ITEC application and the accompanying instructions are available from the ATO by phoning 13 24 78.

When does endorsement start?

The application will ask you for the date from which you want to be endorsed.

The earliest possible date is 1 July 2000. From that date you will only be exempt if you are endorsed.

A charitable institution has existed since 1 January 1991. It has met the physical presence test since 1997. Its ABN is effective from 1 July 2000. Its date of endorsement will be 1 July 2000.

The endorsement date can be retrospective. Income earned from the effective date of endorsement is exempt from income tax.

A charity lodges its application for endorsement in January 2001. As long as it has an ABN and met the conditions for entitlement from 1 July 2000, its endorsement can start from that date. Income earned from 1 July 2000 would then be exempt. A charity is established and operates from 2 October 2000. If it has an ABN and meets the conditions for entitlement from that time, its endorsement date can be 2 October 2000.

Notification

Once the ATO has processed your application, it will send you written confirmation that:

• you are endorsed as exempt from income tax, or
• endorsement has been refused.

If you are endorsed, you are exempt from income tax from the date the endorsement starts.

If there are delays in notifying

If you believe the ATO is too slow in notifying you about whether you are endorsed, you can have your application treated as if it had been refused. The deemed refusal will trigger formal review rights.

The earliest you can notify the ATO of your wish to have your application treated as if it had been refused is the later of:

• the end of the 60th day after you made the application, or
• the end of the 28th day after the last day on which you gave the ATO information or documentation that it had requested.

To have your application treated as if it had been refused, you must give the ATO written notice that you want it treated in that way. Your application will be deemed to be refused on the day you give such a notice.

You then have a right to lodge an objection to the deemed refusal and have the decision reviewed.

Review rights

If endorsement is refused, the ATO will provide you with a clear explanation of its decision. At your request, we will review any of our decisions or actions affecting you and try to resolve any problems quickly and informally. If you want us to do this, you should contact the person handling your case or the Tax Office where the decision was made or action was undertaken.

You also have the right under the law to ask the ATO for a review by lodging an objection against the refusal, or deemed refusal. Your objection must be in writing, addressed to the Tax Office that made the decision. Your letter should explain what you think is wrong and why. This will enable us to consider all the facts when conducting the review.

We will advise you in writing of our decision on your objection and provide reasons for the decision.

If you are dissatisfied with the ATO's decision in relation to your objection, you may have the right to a review by the Administrative Appeals Tribunal or you can appeal to the Federal Court. Our letter that accompanies the notice of decision on your objection will explain the steps you need to follow to exercise your rights of review or appeal.

Gift endorsement

ITEC endorsement does not entitle you to receive income tax deductible gifts. There is a separate endorsement process for deductible gift recipients (DGRs). Charities that have an ABN can get the application and instructions for DGR endorsement from the ATO by phoning 13 24 78.

Income tax - if you are an ITEC

• ITECs are exempt from income tax.
• ITECs need to regularly review whether they are entitled to endorsement.
• An ITEC must tell the ATO if it ceases to be entitled to endorsement.
• The ATO can conduct its own review of your continued entitlement to endorsement.
• Endorsement can be revoked if an ITEC is no longer entitled to endorsement.

Being endorsed as an ITEC gives you important income tax concessions. An ITEC:

• does not pay income tax, and
• does not have to lodge income tax returns unless specifically requested to do so.

However, there is also an important obligation. If an ITEC ceases to be entitled to endorsement, it must tell the ATO in writing.

This section helps you to work out whether you are still entitled to income tax exemption after endorsement. It also explains:

• your obligations if the ATO decides to carry out its own review of your entitlement to endorsement, and
• the revoking of endorsement, and the rights to have a revocation reviewed.

Self-review - am I still entitled to endorsement?

Because you must tell the ATO if you cease to be entitled to endorsement, you will need to carry out regular reviews of your status.

The law does not require any particular intervals between self-reviews, but the ATO recommends a yearly review. There should also be a review when there is a major change in your structure or operations.

To help you carry out a self-review, we have provided a worksheet at the back of this guide. It will take you through the essential points. If you go through the worksheet and find you are not entitled to endorsement, you must tell the ATO. You must do this before entitlement ceases or as soon as practicable afterwards. If you find you are entitled, then you do not have to contact the ATO and your status continues unchanged. ITECs are exempt from income tax.

A log has also been included at the back of this guide to give you a snapshot of the reviews you have carried out over the years. It will help future office-bearers of your organisation and will also help if the ATO conducts a review of your status.

ATO review

As part of its general administration of taxation laws, the ATO will carry out reviews of ITECs. The reviews will help establish if ITECs are in fact entitled to endorsement.

The ATO may request that you provide information and documents that are relevant to your entitlement to endorsement. While you must comply with this request, you will be given at least 28 days to provide the required information and documents. Failure to comply can lead to endorsement being revoked, and to prosecution.

Revoking endorsement

The ATO can revoke an ITEC's endorsement if:

• it is not entitled to be endorsed, or
• it has not provided information or documents within the specified time after a request by the ATO.

The ATO will provide written notice of the revocation. The revocation has effect from a day specified by the ATO. The date may be retrospective.

A training organisation changes its governing documents to remove the non-profit clause and provide for dividends to members. It began to operate on a for-profit basis from 1 September 2000. The organisation is no longer a charity as it operates for the profit of its owners. The ATO will revoke its endorsement with effect from 1 September 2000.

The consequences of having ITEC endorsement revoked are outlined Taxable income.

Review of revocation

If an entity is dissatisfied with the revocation of its ITEC endorsement, it can lodge an objection against the revocation. It does this in writing to the ATO, giving the grounds for the objection.

What ITEC endorsement doesn't mean

ITEC endorsement does not entitle you to receive income tax deductible gifts. There is a separate endorsement process for deductible gift recipients (DGRs). ITECs can get the application and instructions for DGR endorsement and the GiftPack information guide from the ATO by phoning 13 24 78.

Charities do not need ITEC endorsement to receive fringe benefits tax (FBT) concessions.

In relation to the goods and services tax (GST), charities do not need ITEC endorsement to register for the GST, nor is it required for their non-commercial supplies to be GST-free.

Tax avoidance schemes

Although ITECs are exempt from income tax, they will be subject to tax under the Income Tax (Diverted Income) Act if they are used for diverting income as part of a tax avoidance scheme.

Income tax - if you are not an ITEC

• Taxable charities must lodge income tax returns.
• If ITEC endorsement is revoked, income tax returns must be lodged.

From 1 July 2000 a charity that is not endorsed as an ITEC is subject to income tax if it is a:

• charitable institution
• charitable fund established by will before 1 July 1997 or the 'new trust' part of such a fund
• charitable fund established in Australia by will on or after 1 July 1997, or
• charitable fund established in Australia by instrument of trust.

If they are not endorsed as ITECs, these charities would need to lodge income tax returns.

Charitable institutions that are listed by name in the income tax regulations as prescribed institutions are exempt from income tax if they meet the special requirements that apply to them. These institutions will not be required to seek endorsement and tax returns do not need to be lodged.

Charitable funds cannot be endorsed as ITECs if they are:

• charitable funds established by will from 1 July 1997 which are not established in Australia, and
• charitable funds established by instrument of trust which are not established in Australia.

These charitable funds will only be exempt from income tax if they fall in some other income tax exempt category and meet the special conditions for it. Most are likely to be taxable and so must lodge income tax returns.

Income tax returns

There are different returns for different types of taxpayers, including Form C for companies and Form T for trusts. The instructions for the different types of returns explain their requirements.

A taxable charity should use the appropriate form which is available, with instructions, from the ATO by phoning 13 28 61.

Taxable income

If an ITEC's endorsement is revoked, it is taxable from the date the endorsement ceases. That date may be earlier than when the revocation is notified. If this occurs during an income tax year, a tax return should be lodged for the period from that date to 30 June.

The income tax law makes special provision for entities that cease to be exempt and become taxable. Income, outgoings, gains and losses are attributed to the periods before and after the loss of exemption.

If the 'new trust' part of a charitable fund is not endorsed but the 'old trust' part is, the charitable fund must lodge an income tax return. The part of the fund's income that is attributable to the 'old trust' will not be taxable. Only amounts attributable to the 'new trust' need to be included.

Need more information?

If you have any queries after reading this guide, or if you need more information, please contact the information sources listed on the back cover of this guide.

Chapter 3 Other taxes & obligations

This document has been archived. It is current only to 19 June 2003.

In this chapter we outline some other taxes and obligations that affect most charities. They are:

• Australian Business Number (ABN)
• goods and services tax (GST)
• fringe benefits tax (FBT)
• Pay As You Go (PAYG)
• Superannuation Guarantee Charge, and
• State government taxes and duties.

Contact details are provided should you wish to obtain further information.

Australian Business Number (ABN)

• The Australian Business Number (ABN) is a new single identifier that charities will use for their business dealings with the ATO.
• A charity must have an ABN to be endorsed as an income tax exempt charity (ITEC).

Charities will use an ABN to:

• apply to the ATO for endorsement as an income tax exempt charity (ITEC)
• apply to the ATO for endorsement as a deductible gift recipient
• register for GST and claim input tax credits
• deal with investment bodies
• interact in future with other government departments and agencies, and
• interact with the ATO on other taxes, including:
  • Diesel and Alternative Fuels Grant Scheme
  • luxury car tax, and
  • wine equalisation tax.

Your ABN registration details will become part of the Australian Business Register (ABR) which the ATO will maintain for all Commonwealth purposes. The publicly available information in the ABR will allow people to find out whether the entities they are dealing with have an ABN, are registered for GST or are endorsed as deductible gift recipients.

Who is entitled to register for an ABN?

To be entitled to an ABN you must be:

• a company registered under the Corporations Law
• a government department or agency
• an entity carrying on an enterprise in Australia, or
• a non-profit sub-entity for GST purposes.

An entity for ABN purposes means an individual, a body corporate, a corporation sole, a body politic, a partnership, an unincorporated association or body of persons, a trust or a superannuation fund.

The definition of an enterprise for ABN purposes covers activities in the form of a business and includes the activities done by a charitable institution, a trustee of a charitable fund, a religious institution and a deductible gift recipient.

Charities, and certain other non-profit organisations that are registered for GST, may choose to register a branch as a non-profit sub-entity. A non-profit sub-entity maintains an independent system of accounting, is separately identifiable by its activities or location, and is referred to in the entity's records as a separate entity for GST purposes.

How do you register for an ABN?

You can register:

• electronically through the Business Entry Point (BEP) at www.business.gov.au
• on a paper form by mail phone the ATO on 13 24 78 for an application, or
• through a tax agent.

You can register for an ABN and GST on the same form.

Your charity should register for at least one ABN regardless of the number of enterprises that you undertake. However, if your enterprises are carried on by a number of different entity types, each entity must register in its own right.

If your organisation is a subsidiary of a governing body, it is advisable that you discuss ABN registration with your governing body.

If your charity is an entity and has three branches a 'drop in' centre, a sheltered workshop and an opportunity shop it will have only one ABN that will cover all these activities, unless it registers one or more of the activities as a non-profit sub-entity for GST purposes. However if, for example, one of the above activities is conducted by a separate trust, that trust can apply for its own ABN.

Need more information?

Further information about the ABN is available from the sources listed in this guide.

Goods and services tax (GST)

• GST is a broad-based tax of 10 per cent on the supply of most goods and services consumed in Australia.
• Non-commercial supplies by charities such as charitable activities are GST-free.
• Charities must register for GST if their annual turnover is $100 000 or more and they may choose to register if their annual turnover is lower.
• Registered charities can claim credits for the GST included in the price of goods and services they buy in providing their GST-free supplies.

GST is a broad-based tax of 10 per cent on the supply of most goods, services and anything else consumed in Australia. It is also payable on most goods imported into Australia regardless of whether you are registered or not. It applies from 1 July 2000.

Charities that are suppliers of goods and services and are registered (or required to be registered) for GST will have to include 10 per cent GST on many of their commercial supplies. Many supplies by registered charities will be GST-free. (See What if a charity is registered for GST?)

Which charities are required to register for GST?

Charitable institutions and funds

A charity must register for GST if its annual turnover is $100 000 or more. If its turnover is less, it can register if it chooses to. Only charities that are registered can claim credits (input tax credits) for the GST included in the price of goods and services they buy.

Charities can register for GST and apply for an Australian Business Number (ABN) on the same form.

GST branches

A GST-registered entity which operates through a branch structure may choose to register a branch or branches separately for GST. By registering a branch of your organisation as a GST branch, it effectively operates as a distinct entity for GST purposes.

To register as a GST branch, the entity must:

• maintain an independent system of accounting
• be separately identifiable because of its activities or location
• carry on (or intend to carry on) an enterprise through the branch, and
• must not be a member of a GST group.

Non-profit sub-entities

Most non-profit organisations with small independent branches (units) have the option of treating their units as if they were separate entities for GST purposes and not part of the main organisation. This option is only available if the organisation is registered for GST. A unit will be considered to be independent if it:

• maintains an independent system of accounting
• can be separately identifiable because of its activities or location, and
• is referred to in the entity's records as a separate sub-entity for GST purposes.

For example, units could include a branch, fete, lamington drive or fundraising dinner.

This means that where the unit's turnover is less than $100 000, the unit can choose whether it registers for GST or not.

Where the unit has a turnover of $100 000 or more, it will have to register separately for GST and will have the same rights and obligations as other GST-registered entities. In the case of non-profit sub-entities, the liability for all GST obligations of the unit will be imposed on the people responsible for the management of the unit.

What if a charity is registered for GST?

Many supplies made by charities, branches of charities and non-profit sub-entities that are registered, or required to be registered, are GST-free, including:

• all charitable activities provided for no cost
• most education, childcare and health services
• basic food
• non-commercial supplies
• supplies of donated second-hand goods (not reprocessed), and
• raffles and bingo.

These bodies can claim credits for GST they pay for acquisitions used in making their GST-free and taxable supplies (input tax credits).

They include 10 per cent GST on their taxable supplies. When the input tax credits are greater than the GST included, the charity will receive a refund or have the credit applied to other tax debts, if they have any.

What if a charity is not registered for GST?

Charities that are not registered for GST, and not required to be registered, do not include the 10 per cent GST on their supplies. However, these charities are not able to claim input tax credits for the GST they have paid on their purchases.

In the same way, non-profit sub-entities that are not registered, and not required to be registered, will not include GST and will not be able to claim input tax credits.

Need more information?

Industry-specific booklets have been produced to provide details about how GST will relate to the non-profit sector. Topics covered include:

• Arts and Culture
• Charitable, Religious and Non-profit Organisations
• Child and Aged Care
• The Health Industry
• Higher Education and Training, and
• Schools.

Further information, including these booklets, is available from the sources listed at the end of this guide.

Fringe benefits tax (FBT)

• Employers (including some charities) who provide fringe benefits to employees are subject to FBT.
• Some fringe benefits are exempt from FBT.
• Most non-government income tax exempt organisations will qualify for a rebate if they have to pay fringe benefits tax.

FBT is a tax payable by employers (including some charities) who provide fringe benefits to their employees or to associates of their employees. It operates to provide comparable tax treatment of fringe benefits and cash benefits.

FBT is a tax separate from income tax. Even if a charity is exempt from income tax, it may still have to pay FBT. The amount of FBT is calculated on the taxable value of the fringe benefits provided.

At the time this publication was prepared, changes had been proposed by the Government in relation to FBT. These proposals are outlined in Proposed changes.

What is a fringe benefit?

A fringe benefit is an employment-related benefit provided to an employee or an associate of the employee (typically a family member). Benefits may be rights, privileges or services. For example, a fringe benefit is provided when an employer:

• allows an employee to use a work car for private purposes
• gives an employee a cheap loan, or
• pays an employee's private health insurance costs.

Some employers, including charities, will need to distinguish between employees and volunteers. A volunteer is a person who is not paid for work in either cash or fringe benefits. Volunteers may be reimbursed for out-of-pocket expenses. Where more than this reimbursement is provided, the recipient is generally regarded as an employee.

What organisations can provide exempt benefits?

Certain benefits provided by the following organisations are exempt from FBT:

• public benevolent institutions
• religious institutions, and
• certain non profit companies

Public benevolent institutions (PBIs)

Benefits provided by PBIs to their employees are exempt benefits.

A PBI is an organisation that has the principal purpose of relieving poverty, sickness, suffering, destitution or helplessness. It carries on its activities without seeking private gain for particular people. More information on PBIs can be found in the ATO's guide GiftPack.

A charitable institution is not necessarily a PBI. The difference between a PBI and a charitable institution is discussed in Taxation Determination TD 93/11.

Religious institutions

Subject to certain requirements, benefits provided by religious institutions to religious practitioners, live-in and non-live-in domestic employees and live-in carers are exempt from FBT.

Religious practitioners

Benefits that religious institutions provide to religious practitioners are exempt if the benefits are provided principally in respect of the practitioner's pastoral duties or other duties relating to the practice, study, teaching or propagation of religious beliefs. This matter is discussed in more detail in Taxation Ruling TR 92/17.

Domestic employees

Benefits that religious institutions provide to live-in and non-live-in domestic workers are exempt in certain circumstances.

For live-in employees, the employee's duties must principally involve domestic or personal services for religious practitioners and the practitioners' relatives residing with them. The benefits that may be exempt include the employee's live-in accommodation and food.

For non-live-in employees, the employee's duties must principally involve domestic services for religious practitioners and the practitioners' relatives residing with them. The exempt benefits are limited to food and drink consumed by the employee whilst carrying out their duties of employment.

Live-in carers

Where the activities of religious institutions include caring for elderly or disadvantaged people, certain benefits provided to their employees will be exempt.

The exemption relates to live-in carers where the carer resides with the elderly or disadvantaged person in residential accommodation provided by the employer. The benefits that may be exempt include the employee's live-in accommodation and food.

Non-profit companies

Non-profit companies whose activities include caring for elderly or disadvantaged people can provide exempt benefits to live-in carers. The conditions for exemption are the same as for religious institutions, outlined above.

A non-profit company means a company that is not carried on for the purposes of profit or gain to its individual members and its constituent document prohibits it from making any distribution to its members. Some charitable institutions may qualify as non-profit companies but charitable funds, being trusts, will not.

Copies of Taxation Determination TD 93/11 and Taxation Ruling TR 92/17 are available by phoning the FBT inquiry service on 13 33 28.

What organisations are eligible for a rebate?

Most non-government organisations that are income tax exempt will qualify for an FBT rebate. Qualifying employers are entitled to have their FBT liability reduced by a rebate equal to 48 per cent of the gross FBT payable.

What are the fringe benefits tax reporting requirements?

From 1 April 1999, employers will need to keep records that show the taxable value of certain fringe benefits provided to individual employees.

If the total taxable value of reportable fringe benefits provided to an employee in an FBT year exceeds $1000, the employer must record the grossed-up taxable value of those benefits on the employee's group certificate or payment summary for the corresponding year.

Some benefits that are exempt from FBT may still need to be reported on group certificates. These are benefits that are exempt only because they are provided to:

• live-in carers of elderly or disadvantaged people employed by religious institutions, non-profit companies and government bodies, and
• employees of PBIs, including government employees who work in a public hospital.

These benefits are treated as quasi-fringe benefits. The grossed-up taxable value is added to other reportable fringe benefits and the total is reported on the employee's group certificate or payment summary.

The requirement to report exempt benefits does not create an FBT liability for the organisation that is providing the exempt benefit. The requirement to report ensures that fringe benefits are taken into account when determining an employee's liability to a superannuation contributions surcharge, terminations payment surcharge, Medicare levy surcharges, entitlement to income-tested government benefits, child support obligations and Higher Education Contribution Scheme repayments.

What does 'grossed up' mean?

Grossing-up reflects the gross salary that would have to be earned at the highest marginal tax rate, including Medicare levy, to purchase the benefit from after-tax dollars.

The grossed-up taxable value is calculated by multiplying the total taxable value of the fringe benefits by 1/(1- the rate of FBT).

The total value of benefits provided by a PBI to an employee during the FBT year ended 31 March 2000 was $1100. Suppose the FBT rate for the year ending 31 March 2000 is 48.5 per cent. The grossed up value of the benefits is then calculated as follows: (1 / (1 - 0.485)) x $1100 = $2136 The amount reported on the employee's group certificate or payment summary for the year ending 30 June 2000 is therefore $2136.

Proposed changes

Changes have been proposed by the Government in relation to FBT. The proposals had not become law at the time GiftPack was prepared. The proposed changes include:

• the concessional FBT treatment (exemption and rebate) currently available to PBIs and certain non-profit organisations will be capped. The cap will apply on a per employee basis. Amounts of fringe benefits above this cap will be subject to normal FBT treatment. However, the cap does not place a limit on the use of other FBT-exempt benefits such as superannuation, minor benefits less than $100, a laptop computer, work-related mobile phones and other miscellaneous benefits, and
• the grossing-up formula will be adjusted to take GST into account.

Interested persons should contact the ATO's FBT enquiry service for the status of these proposals.

Need more information?

If you have any questions or need more information on FBT, please phone the ATO's FBT inquiry service on 13 33 28.

Our staff will be able to answer your specific queries and provide you with our current FBT publications.

Further information is also available from the sources listed in this guide.

Pay As You Go (PAYG)

• PAYG replaces most tax instalment and withholding systems from 1 July 2000. The start date for paying PAYG instalments will be different for organisations with an earlier or later accounting period.
• PAYG instalments enable an organisation to provide for its final taxation liability by paying tax in instalments throughout the year.
• PAYG withholding is the system through which an organisation withholds tax from payments it makes. It encompasses the original Pay As You Earn (PAYE) and tax file number (TFN) withholding obligations and has three new withholding categories of importance to charities voluntary agreements with contractors, no-ABN withholding and labour hire arrangements.
• Charities are not exempt from PAYG withholding.

What is Pay As You Go (PAYG)?

PAYG starts from 1 July 2000 for most organisations. PAYG is a single, integrated reporting system which replaces more than ten existing instalment and reporting systems. These include provisional tax, company and superannuation fund instalments, pay as you earn (PAYE), the prescribed payments system (PPS), the reportable payments system (RPS), and dividend, interest and royalty withholding for non- residents. PAYG also simplifies how you pay tax by aligning the dates for payment.

PAYG consists of two arms: PAYG instalments and PAYG withholding.

PAYG instalments applies from the start of the 2000-01 income year, which for most taxpayers is 1 July 2000.

The start date for PAYG instalments will be earlier or later for companies that do not balance on 30 June.

PAYG withholding is applicable to payments made on or after 1 July 2000.

What is PAYG instalments?

PAYG instalments replaces provisional tax and company and superannuation fund instalments.

Under PAYG instalments, taxpayers who are notified by the ATO of an instalment rate will be required to pay their own tax by instalments.

PAYG allows the timing of instalments by businesses and investors to reflect their current trading and income flows.

What is PAYG withholding?

Under PAYG withholding, if you make certain listed payments you will be required to withhold an amount from the payment and pay this to the ATO.

Your organisation has PAYG withholding obligations as a payer if it makes one of the following types of payments:

• salary, wages, commission, bonuses or allowances to an employee
• remuneration to a director or member of committee of management
• salary etc to an office holder (such as a member of the defence forces, a police officer or person holding office under the Constitution including members of parliament)
• return to work payments
• retirement payments (that is, unused leave), eligible termination payments, pensions and annuities
• social security and compensation payments
• payments for work or services under labour hire arrangements or prescribed by regulations
• payments for work or services where your organisation and an individual have a voluntary agreement to withhold
• payments for a supply (services or goods) to another business which does not quote an ABN, and
• certain dividend, interest and royalty payments.

The obligation to withhold amounts from payments of salary or wages to employees (former PAYE), and from other payments such as dividends, interest or royalties paid to non-residents, carries over into the new system. The PPS and RPS systems cease to operate after 30 June 2000.

How does PAYG work for my employees?

PAYG withholding will replace and modernise the PAYE system. Under PAYE, salary or wage earners paid their income tax and Medicare levy by instalments deducted from their pay. Under PAYG this has not changed. However, it is proposed that Student Financial Supplement Scheme debits will also be collected under the new PAYG arrangements.

As an employer you deduct the correct amount of tax from your employee's salary or wage and pay it to the ATO. Tax tables will be provided to tell you how much tax to take out. These are available from the ATO and can also be obtained directly from our web site

At the end of the financial year, you give each employee a payment summary which shows how much they were paid during the year and how much tax was deducted. The payment summary is then included in their tax returns.

This operates in a similar way to group certificates under the old PAYE system.

What are my obligations for other PAYG withholding payments?

The most common circumstances that could arise where a charity may have PAYG withholding obligations other than for employees would be:

• payments for work or services under voluntary withholding agreements, and
• payments for a supply (services or goods) to another business which does not quote an ABN.

The rates of withholding depend upon the type of payment. For example, the 'no ABN quoted' withholding rate is the highest marginal rate plus Medicare levy (currently 48.5 per cent), while the rate to be used for a voluntary withholding agreement is in the tax tables.

You should contact the ATO to find out the rates that apply to other payments.

A payment summary is also issued to individuals and entities (who are not employees) where PAYG withholding is made for the other types of payments subject to PAYG withholding.

Are there exceptions to withholding when an ABN is not quoted?

Yes. An amount need not be withheld where:

• the whole of the payment is exempt income of the supplier (for example an ITEC)
• the payer is an individual paying for a supply of a private or domestic nature
• the payment does not exceed $50
• the supply is made by a member of a local governing body under a State or Territory law, or
• the payee has made a written, signed statement that the supply is private or domestic in nature, or relates to a hobby.

Are charities exempt from PAYG withholding?

No. Charities are not exempt from PAYG withholding obligations. Every payer has to withhold from payments subject to PAYG withholding.

What to do if you have PAYG withholding obligations

If you make payments that are subject to PAYG withholding, you will need to register. You should contact the ATO's Small Business Helpline on 13 28 66 or the business Tax Reform Infoline on 13 24 78.

Where a payment you make is subject to PAYG withholding, you will be required to withhold the required amount from the payment and pay the amount deducted to the ATO by the due date.

If you are a small or medium withholder, the amount withheld will be reported on your business activity statement along with any GST, PAYG instalments or FBT amounts. Any credits you are entitled to (such as input tax credits for GST) will be offset against any amount of PAYG withholding and other taxation liabilities you are required to report on your Business Activity Statement. You will be required to remit these amounts monthly or quarterly, depending on your withholder status.

If you are a large withholder you are required to pay withheld amounts more frequently.

At the end of the year you will be required to submit to the ATO an annual report which reconciles all withholding payments you have made to the ATO during the financial year.

Is a charity subject to PAYG withholding on payments it receives?

Yes. A charity may have an amount withheld from a payment it is due to receive if it does not quote its ABN or tax file number (TFN) to the payer.

For charities that are not ITECs, the following payments are subject to PAYG withholding:

• a supply made by the charity where it has not quoted its ABN on an invoice, or
• dividends and interest where the charity has not quoted its TFN or ABN to a financial institution.

What happens if a charity does not quote its ABN on an invoice?

Where an ABN has not been quoted, a payer must withhold the highest marginal rate plus Medicare levy (currently 48.5%) from a payment for a supply, unless one of the exceptions (see exceptions) applies to the payment.

What happens if a charity does not quote its TFN on its investments?

Under the tax law, the investment body (such as a bank, building society, unit trust or public company) must withhold an amount from the interest or dividends payable on the investments if a charity has not quoted its TFN. The amount withheld can be claimed as a credit when the charity lodges its tax return.

The exceptions to this rule are:

• where the charity has quoted its ABN to the investment body and the investment is held in the course or furtherance of an enterprise of the charity, or
• where the charity is not required to lodge an income tax return, which includes ITECs.

Can a charity obtain a refund of any PAYG withholding amount withheld in error from a payment it receives ?

Yes. Depending on the circumstances, the charity has the following options:

• if the charity lodges income tax returns, it may choose to claim the amount as a credit when it lodges a return at the end of the financial year
• the payer may refund to the charity where the payer becomes aware of the error or the charity applies to the payer for a refund, before the end of the 21 July following the financial year in which the amount was withheld, or
• if the above situation does not apply and the withheld amount has already been paid to the ATO, the charity may apply direct to the ATO for a refund.

Need more information?

Further information about current and new tax instalment and withholding systems is available from the sources listed in this guide.

Superannuation Guarantee Charge

• All charities who are employers are subject to the Superannuation Guarantee legislation.
• A Superannuation Guarantee Charge must be paid if an insufficient level of superannuation support is provided for the charity's employees.

Your organisation may be affected by the Superannuation Guarantee (SG) legislation if it has employees.

Under the SG legislation an employer is required to provide a prescribed minimum level of superannuation support for most of its employees. Employers who do not provide enough superannuation support will have to pay a Superannuation Guarantee Charge (SGC).

The SGC is not a deductible expense.

What charities are exempt from the SGC?

All charities that are employers are subject to the SG legislation. Even charities that are exempt from income tax have obligations under the SG legislation.

Does your organisation need to make superannuation contributions for its employees?

Your organisation will need to make superannuation contributions for its employees to avoid paying the SGC.

Most employees, whether full-time, part-time or casual, are covered by the SG legislation.

Exceptions include employees who are:

• paid less than $450 in any calendar month; superannuation does not have to be provided in respect of that month
• aged 70 or over (65 for 1996-1997 and earlier income years)
• non-resident employees who are paid solely for work undertaken outside Australia
• under 18 years old and employed part-time (that is, for no more than 30 hours a week), or
• employed for no more than 30 hours per week to do work that is primarily of a private or domestic nature.

Need more information?

If you have any questions or need more information on Superannuation Guarantee, please contact the Superannuation Hotline on 13 10 20 for the cost of a local call. This number is linked to the Translation and Interpreting Service for non-English speakers.

For the cost of a local call you can now have information sheets faxed to you have your fax machine ready and call 13 28 60.

Alternatively, our internet web site address is www.ato.gov.au/super.

State government taxes and duties

• State and Territory taxes include stamp duty, pay-roll tax, land tax, financial institutions duty and debits tax.
• Each State has its own law for these taxes, administered by its revenue office. While the laws between States are comparable, there are some variations.
• Some State taxes will be abolished as a result of GST.
• Contact details for State and Territory revenue offices are provided at the end of this section inquiries about State taxes should not be directed to the ATO.

This section provides an overview of the following State taxes: stamp duty, payroll tax, land tax, financial institutions duty, and debits tax.

Each State has its own laws for these taxes, administered by its revenue office from which further information is available. Contact details are provided at the end of this section.

Inquiries about State and Territory taxes should not be directed to the Australian Taxation Office.

Stamp duty

Stamp duty is a tax on written documents ('instruments') and certain transactions including motor vehicle registrations and transfers, insurance policies, leases, mortgages, hire purchase agreements and transfers of property (such as businesses, real estate or shares).

The rate of stamp duty varies according to the type and value of the transaction involved. Depending on the nature of the transaction, certain concessions and exemptions may be available.

Stamp duty on publicly listed marketable securities will be abolished from 1 July 2001.

Payroll tax

Payroll tax is a tax on the wages paid by employers. Employers are liable for payroll tax when their total Australian wages exceed a certain level called the 'exemption threshold'. Exemption thresholds vary between States.

Payroll tax should not be confused with PAYG withholding tax, collected by the ATO. Payroll tax is payable to the State by an employer, based on the total wages paid to all employees. PAYG is the tax deducted from an individual's income and forwarded to the ATO. PAYG is explained further.

Certain organisations may be exempt from payroll tax provided specific qualifying conditions are satisfied. These organisations may include religious institutions, public benevolent institutions, public or non-profit hospitals, non-profit non-government schools or colleges providing education at secondary level or below, municipal councils and charitable organisations.

As requirements vary between States, employers should seek clarification from their local State or Territory revenue office.

Land tax

Land tax is imposed in all States and the ACT, but not in the NT. It is a tax levied on landowners except in the ACT where it is levied on lessees under a Crown lease.

Landowners are generally liable for land tax when the unimproved value of taxable land exceeds certain thresholds. In some States there are deductions and rebates available, depending on the use of the land. Principal places of residence are usually exempt from land tax although this is subject to certain qualifying criteria which vary between jurisdictions.

Land owned and used by certain organisations may be exempt from land tax. These organisations generally include non-profit societies, clubs and associations, religious institutions, public benevolent institutions and charitable institutions.

As requirements vary between States, organisations should seek clarification from their local State or Territory revenue office.

Financial institutions duty (FID)

FID is a tax on the receipt of money by a financial institution and currently applies in all States and Territories, except Queensland. FID will be abolished from 1 July 2001.

The receipt may involve the physical receipt of money (for example, a deposit by a customer into a bank account) or the crediting of an account (for example, the credit of interest earned or the transfer of money from another bank account).

While liability for the payment of FID rests with the financial institutions, legislation allows for the charge to be recouped from customers.

There are limited exemptions from FID and eligibility for exemption varies across jurisdictions. Bodies which may be eligible to conduct an account exempt from FID include registered financial institutions, charitable or public benevolent institutions, public hospitals, public schools and certain government departments.

As requirements vary between States, organisations should seek clarification from their local State or Territory revenue office.

Debits tax

Debits tax is charged on debit transactions (for example withdrawals, account keeping fees etc) to accounts with cheque drawing or payment order facilities. Debits tax is not charged on reversals of credit transactions or deductions for debits tax. This tax is scheduled to be abolished by 1 July 2005, subject to review by the Commonwealth, States and Territories.

Debits tax was previously known as Bank Account Debits Tax or BAD Tax.

Financial institutions and account holders are jointly liable for debits tax, however it is usually paid by the financial institution and recouped from the account holder.

There are limited exemptions from debits tax and eligibility differs between jurisdictions. Debits made to accounts held by bodies, such as public benevolent institutions, religious institutions, public hospitals and government schools are generally not taxable.

As requirements vary between States, organisations should seek clarification from their local State or Territory revenue office.

State and Territory contact details

NSW Office of State Revenue Internet: www.osr.nsw.gov.au Email: services@osr.nsw.gov.au Ph: (02) 9689 6200 Fax: (02) 9689 6464 Postal Address: Locked Bag 5215 Parramatta NSW 2124	Revenue SA Internet: www.treasury.sa.gov.au/revenuesa Email: revenuesa@saugov.sa.gov.au Ph: 1800 637 778 Fax: (08) 8226 3737 Postal Address: GPO Box 1353 Adelaide SA 5001
Queensland Office of State Revenue Internet:www.osr.qld.gov.au Email: Enquiries@osr.treasury.qld.gov.au Ph: (07) 3227 8733 Fax: (07) 3227 7037 Postal Address: GPO Box 2593 Brisbane QLD 4001	Territory Revenue Management Internet: www.nt.gov.au/ntt/revenue Email: ntrevenue.treasury@nt.gov.au Ph: (08) 8999 7949 Fax: (08) 8999 6395 Postal Address: GPO Box 154 Darwin NT 0801
ACT Revenue Office Internet: www.act.gov.au/government/taxation Email: ACTRevenue@dpa.act.gov.au Ph: (02) 6207 0028 Fax: (02) 6207 0026 Postal Address: GPO Box 158 Canberra ACT 2601	State Revenue Office Tasmania Internet: www.tres.tas.gov.au Email: returns@tres.tas.gov.au Ph (03) 6233 2953 Fax (03) 6234 3357 Postal Address: GPO Box 1374 Hobart TAS 7000
State Revenue Office of Victoria Internet: www.sro.vic.gov.au Email: sro@sro.vic.gov.au Ph: 13 21 61 Fax: (03) 9628 6222 Postal Address: GPO Box 1641N Melbourne Vic 3001	State Revenue Department of Western Australia Internet: www.wa.gov.au/srd Email: srd@srd.wa.gov.au Ph: (08) 9262 1400 Fax: (08) 9262 1499 Postal Address: GPO Box T1600 Perth WA 6845

Appendices

This document has been archived. It is current only to 19 June 2003.

Appendix 1 - Are you a charity?

This appendix helps you work out if you are a charity. If you are a charity, it will help you with:

• income tax endorsement as an income tax exempt charity (ITEC)
• goods and services tax (GST) whether supplies are GST-free
• Australian Business Number (ABN) entitlement to an ABN, and
• fringe benefits tax (FBT) rebate to reduce FBT payable.

The appendix has the following structure:

• the characteristics of charities What is a charity?
• purposes that are not charitable Organisations that are not charities
• key points to work through Checklist am I a charity?, and
• lists of descriptions and examples of charities and non-charities Types of organisation listing.

The checklist helps you relate these elements to your circumstances by drawing together the characteristics, purposes and examples. Before concluding that you are or are not a charity you should use the checklist.

What is a charity?

A charity is an entity established for altruistic purposes that the law regards as charitable. The ATO does not set the criteria to decide whether or not an organisation is a charity. The criteria are established in the law by case judgements. Charitable purposes are the relief of poverty, the relief of the needs of the aged, the relief of sickness or distress, the advancement of religion, the advancement of education and other purposes beneficial to the community.

Charities include most religious institutions, aged persons homes, homeless hostels, organisations relieving the special needs of people with disabilities and societies that promote the fine arts.

The characteristics of a charity are:

• it is an entity which is also a trust fund or an institution
• it exists for the public benefit or the relief of poverty
• its purposes are charitable within the legal sense of that term
• it is non-profit, and
• its sole or dominant purpose is charitable.

Entity

An entity for these purposes includes a corporation, unincorporated association, trust or partnership. A charity must be an entity. A part of an entity like a branch, division or account is not treated as a charity.

The entity must be a trust fund or an institution. Whether an entity has the character of an institution will depend on a range of features including its activities, size, permanence, purposes and recognition. Incorporation is not enough, on its own, to show an entity is an institution. A charitable institution would not usually include an entity that is established, controlled and operated by family members and friends.

Charities are for the public

Charities are altruistic and exist for the benefit of the community or the relief of poverty. If an entity places limits on those who can benefit from its activities, it may still be a charity if those limits are only to enable it to better carry out its charitable purposes.

Charities sometimes limit their activities to a particular segment of the community. Such groups include residents of a particular geographic area, the adherents of a particular religion, or sufferers of a particular disability or condition. If the nature of the benefits provided by an organisation are compatible with such a limit, the purpose can be charitable.

Limiting access to a library to residents of a particular town could be for the public benefit, but limiting the use of a bridge to followers of a particular religion would not.

Charities often limit access so as to better provide their services to the community. Examples can include the enrolment procedures of schools, the membership procedures of a police and citizens youth club, referral policies of medical clinics, and the borrowing rules of libraries. The continuation and efficient administration of a charity can make such limits necessary.

A religious school only educates children who go through its enrolment procedure. If this is merely a means of enabling the school to provide its services to the community, the enrolment process does not disentitle the school from being a charity.

If an entity limits benefits on the basis of family ties, employment with a particular employer or membership of a particular association, it will not be a charity unless its purpose is solely to relieve poverty.

A fund is set up to provide scholarships for children of employees of a particular company. The fund is not charitable. A business association is set up to advance the common interests of its members. It is not a charity because its purpose is to benefit its members and not the public. This is the case even though it funds research.

Charitable purposes

Not all entities which are of benefit to the community are charitable. The entity must be set up for purposes that the law regards as charitable. These purposes are not limited to a finite list. As new community needs arise, particular purposes may be recognised by the courts as charitable. We have provided examples of charities under the following headings:

• aged persons
• animals
• culture
• defence and public order
• disaster relief
• education
• environment
• health
• indigenous persons
• industry, commerce, agriculture
• locality or neighbourhood
• moral improvement
• people with disabilities
• poverty
• public works and utilities
• religion
• research
• science
• unemployment, and
• young persons.

The listing introduces the characteristics of charities under each heading and gives examples of charities and non-charities.

Charities are non-profit

An entity is not charitable if it is carried on for the purposes of profit or gain to particular persons including its owners or members. This is the case irrespective of the number of owners or members, or whether charitable consequences flow from the entity's activities.

A hospital is operated to distribute dividends to private shareholders. The hospital is not a charity even though it cares for the sick.

Entities can satisfy the non-profit requirement if their constituent or governing documents prevent them from distributing profits or assets for the benefit of particular persons both while they are operating and on winding up. The entity's actions must be consistent with this requirement. This is so for both direct and indirect gains.

A company limited by guarantee with the following clauses in its constitution would meet the non-profit requirement, providing its actions were consistent with them. Non-profit clause

'The assets and income of the organisation shall be applied solely in furtherance of the above- mentioned objects and no portion shall be distributed directly or indirectly to the members of the organisation except as bona fide compensation for services rendered or expenses incurred on behalf of the organisation.' Dissolution clause

'In the event of the organisation being wound up, any surplus assets remaining after the payment of the organisation's liabilities shall be transferred to another organisation with similar purposes and is not carried on for the purposes of profit or gain to its individual members.'

A charity can be non-profit and still make a profit. However, any profits it makes must be used for charitable purposes. The profits must not be distributed to owners, members or other private persons.

A charity makes a $40 000 profit for the year. It uses the profit to reduce its debts and provide for next year's charitable activities.

Sole or dominant purpose

The sole or dominant purpose of the entity must be charitable. For a mere trust fund to be charitable it must be established solely for charitable purposes. If the entity has purposes which, when viewed in isolation would not be charitable, they must be incidental or ancillary to the charitable purpose.

A religious congregation holds occasional sporting activities among members. These activities are designed to advance and foster religion among the group. The religious congregation is a charity. The sporting activities are incidental to its religious purpose.

If an entity has purposes that are not part of or incidental to its charitable purpose, it is not a charity. This is the case even if those purposes are secondary.

An association has been set up to be a social club and to look after injured animals. It is not a charity even though it mainly cares for animals, with lesser attention given to the social club.

The characteristics of each entity will determine whether it is a charity. An entity's governing or constituent documents (constitution, memorandum and articles of association, trust deed, rules, charter etc) must show that it is a charity. For entities that are not merely trust funds, their activities must also show they are charities.

A corporation limited by guarantee has the object of operating a volunteer disaster relief service for the public. Its activities are consistent with its object. The corporation is a charity. A trust fund's object is to provide scholarships to disadvantaged Aboriginal school students. The trust fund is a charity.

Organisations that are not charities

Many community organisations are not charities. An entity is not a charity if:

• it is primarily for sporting, recreational or social purposes, or
• it is primarily for political, lobbying or promotional purposes.

Government departments and instrumentalities carrying out the ordinary functions of government are unlikely to be charities.

Charities are not sporting, recreational or social

Sporting and recreational entities established for sporting or recreational purposes are not charities.

Organisations that are not charities include rowing clubs, football clubs, dancing clubs, bridge clubs, card clubs, athletic clubs, horse racing clubs, model train societies, gem clubs, boating and fishing clubs, snooker centres, boxing clubs, callisthenic clubs, golf clubs, ski clubs, car clubs, scuba-diving clubs and motor-racing clubs.

Entities which are primarily for social or entertainment purposes are not charitable.

Organisations that are not charities include social clubs run by religious institutions, ethnic cultural associations, cinema clubs, nudist clubs, singles clubs, friendship clubs, wine societies and fan clubs.

Sporting, recreational or social activities can be carried out by a charity if they are merely a means used to achieve charitable purposes.

A rehabilitation service organises swimming sessions to help its clients regain full use of their limbs. It is a charity as its swimming activities are a means of carrying out its dominant purpose of helping people recover from their injuries. An organisation has been set up to facilitate sporting programs run by universities in Queensland. The organisation is a charity if the sporting programs are a means of advancing education among the universities' students.

Charities are not political, lobbying or promotional

An entity is not charitable if its dominant purpose is advocating a political party or cause, attempting to change the law or government policy, or promoting a particular point of view.

However, if an entity's purpose is otherwise charitable, the presence of political, lobbying or promotional activity that is incidental to the charitable aims will not prevent it being a charity.

An animal shelter's main purpose is looking after sick, stray and unwanted animals. Around budget time it sometimes lobbies politicians for funding. As long as the lobbying remains no more than incidental to the charitable purpose, the animal shelter will continue to be a charity. A group of State-based health charities form a national peak body having the same objects. The activities of the peak body are various means of coordinating and supporting the State charities' activities, including by lobbying. As long as the lobbying is incidental to its charitable health purposes, the peak body can be a charity.

Political parties and organisations promoting political parties or their policies are not charitable.

An institute formed to educate people in the platform of a political party is not a charity.

An entity whose dominant purpose is to change the law or government policies is not charitable. This is so even if the subject matter of the change may be beneficial to the community or is of great concern to the community.

A residents action group is formed to lobby against a proposed rubbish dump near a suburb. It is not a charity.

An entity seeking to maintain existing law or government policy is also considered not charitable.

An entity which aims to promote a particular point of view or endeavours to convince the public of the correctness of such a view is not charitable. This is irrespective of whether the view seeks to change law or government policy, or uses educational means to achieve its aims.

An organisation is set up to convince the public that pornography is a detriment to society. It is not a charity. An organisation has been established to promote a 40 letter alphabet to be used by the community. It believes that the alphabet will result in a great benefit to the community because it will be cheaper and easier to use. The organisation is not a charity.

Governmental

Government departments and instrumentalities are unlikely to be charitable institutions. They are simply carrying on the ordinary activities of a government department. This is so even if the activities are such that if carried on by private persons they would be charitable.

A State welfare department helps homeless people. The department is not a charity.

However, charities frequently receive government funding. This does not stop them being charities.

A migrant resource centre receives government funding and has a service agreement with a government department. The centre is still a charity despite having been funded by a government department. To be a charity you must:

• be an entity (corporation, unincorporated association, trust or partnership etc)
• be a trust fund or an institution
• be able to demonstrate from your constituent or governing documents and your activities (if applicable) that you are carried on for the public benefit or the relief of poverty
• be non-profit. This means you are not carried on for the profit or gain of your owners, members or other private persons
• not be:
  • carried on for sporting, recreational or social purposes
  • carried on for political, lobbying or promotional purposes, or
  • a government instrumentality carrying out the ordinary functions of government
• from the listing that applies to you (Types of organisation listing) have a sole or dominant purpose:
  • within the characteristics in the Description
  • the same as, or equivalent to, that of any organisation in the Charities examples, and
  • not the same as, and not equivalent to, any in the Non-charities examples.

If you are a charity, chapter 1 gives an explanation of your income tax status. Charities are not automatically exempt from income tax and must be endorsed by the ATO.

As explained earlier, if you are not a charity this guide does not apply to you. The income tax status of clubs, societies and associations that are not charities is explained in ClubPack which is available from the ATO by phoning 13 24 78.

Types of organisation listing

For each group of charities, the following listing gives a description of the characteristics of organisations that are charities. It then gives examples of typical charities and non-charities in alphabetical order. You should check both examples. These lists are intended to be illustrative of the guidelines and principles set out in this chapter and are not exceptions to them.

The list of examples of charities and non-charities in this chapter is not exhaustive.

Your organisation could fall into more than one group of charity. You should check other groups.

Use the Checklist am I a charity? to confirm whether you are a charity.

Group	Group
Aged persons	Locality or neighbourhood
Animals	Moral improvement
Culture	People with disabilities
Defence and public order	Poverty
Disaster relief	Public works and utilities
Education	Religion
Environment	Research
Health	Science
Indigenous persons	Unemployment
Industry, commerce, agriculture	Young persons

Aged persons

Description

Non-profit entities that operate for the public benefit to relieve needs arising from old age are charities. Needs can involve accommodation, nursing and health care, security, isolation and loneliness.

Social, recreational and lobbying groups are not charities. Organisations that are primarily for the benefit of members are not charitable.

Charities examples

• Alzheimer's associations
• arthritis foundations
• community services that provide food, home visits and assistance with shopping for the elderly and infirm
• home maintenance services for the elderly and frail
• respite services
• senior citizen organisations if they are not lobbying or merely social or recreational
• trust funds distributing solely to charities that relieve the needs of the aged

Non-charities examples

• lobbying bodies including lobbying of government on social security benefits and entitlements
• political bodies
• social, sporting and recreational bodies even where the majority of participants are aged people

(Note: some organisations will be charitable where the social, sporting and recreational purpose is ancillary to a charitable purpose of alleviating the needs of the elderly in terms of health, isolation and loneliness. Each case will depend on the circumstances.)

Animals

Description

Non-profit entities that operate for the public benefit to protect, care for, preserve, or study animals, or improve the community's moral feelings towards them, are charities.

Recreational, sporting, lobbying and private bodies are not charities. Organisations that are primarily for the benefit of members are not charitable.

Charities examples

• animal protection societies
• animal refuges and shelters which help lost, sick or injured animals including organisations that care for unwanted and deserted pets
• cat protection societies involved in caring and finding homes for unwanted kittens and cats and promoting the de-sexing of animals
• endangered species organisations whose purpose is to conserve particular animal species and look after their well-being, for example koala preservation societies
• guide dog associations
• scientific bodies studying animal behaviour and disseminating information to the public
• wildlife hospitals which provide care and sanctuary for injured wildlife
• wildlife protection societies involved in protecting and preserving wildlife and organising wildlife rescues

Non-charities examples

• animal rights bodies that are lobbying in nature
• animal racing organisations, for example horse racing, greyhound racing and pigeon racing
• anti-vivisection societies
• breeders associations that represent the interests of breeders and help members in their breeding activities
• fanciers and owners associations, for example canary clubs and beekeepers associations
• fishing and angling clubs
• funds for particular animals, for example a trust under a will for a deceased person's cat
• lobbying and political bodies

Culture

Description

Non-profit entities that operate for the public benefit to advance the arts or educate the public in the arts are charities.

Recreational, entertainment, lobbying and private bodies are not charities. Organisations that are primarily for the benefit of members are not charities.

Charities examples

• arts societies which encourage and promote the cultivation and appreciation of the fine arts
• ballet foundations to promote and encourage interest in ballet
• bodies promoting culture and the arts in schools
• choral and orchestral societies
• friends of public museums and art galleries
• opera companies that are non-profit
• public art galleries
• public libraries
• public museums
• trust funds distributing solely to charities that promote the arts

Non-charities examples

• antique or vintage car clubs
• bridge and other card clubs
• camera clubs
• cinema clubs
• doll clubs
• ethnic social and cultural associations
• historical re-enactment clubs
• professional associations of artists, dancers, musicians, curators, educators in the cultural arts field, and the like
• science fiction clubs
• social clubs and organisations
• stamp-collecting clubs
• trade unions

Defence and public order

Description

Non-profit entities that operate for the public benefit to contribute to the defence of Australia and to help maintain public order are charities.

Social and recreational groups are not charities. Government instrumentalities carrying out the ordinary functions of government are unlikely to be charities.

Charities examples

• defence research organisations which provide research into aspects of Australian defence and national security
• disabled soldier associations which care for soldiers injured or maimed during service, for example blinded soldiers associations and limbless soldiers associations
• family support organisations which help the families of deceased veterans or police personnel
• historical societies which record and research the history of the armed forces
• social welfare organisations for the benefit of armed forces personnel and their dependants
• volunteer emergency rescue bodies
• veterans organisations if their purpose is to provide welfare services for veterans

Non-charities examples

• government instrumentalities carrying out the ordinary functions of government
• homing pigeon associations
• pistol and rifle clubs
• social or cultural groups set up by defence force members, police or emerge ncy personnel
• trade unions and employee associations for members of the police force and other emergency personnel

Disaster relief

Description

Non-profit entities that operate for the public benefit to relieve or prevent the distresses caused by natural and man-made catastrophes are charities.

Government instrumentalities are unlikely to be charities.

Charities examples

• cyclone relief funds
• flood relief funds
• public funds for disaster relief
• public funds relieving necessitous circumstances
• surf lifesaving clubs
• volunteer emergency rescue bodies

Non-charities examples

• employee associations that protect the industrial interests of employees in the emergency services sector
• funds for private persons who have been in natural or man-made disasters
• government instrumentalities carrying out the ordinary functions of government

Education

Description

Non-profit entities that operate for the public benefit to advance education are charities.

Organisations run for the profit of their owners or the common interests of members (for example professional and business associations) are not charities. Lobbying and political bodies are not charities.

Charities examples

• bursary and prize funds set up to reward academic excellence that are for a section of the public and not for private interests such as the employees of an employer
• childbirth education bodies
• educational institutes which are not party political and whose purpose is to stimulate debate on cultural, political, economic, moral or philosophical issues
• grammar schools
• health education bodies, for first aid and resuscitation
• historical societies whose purpose is to preserve historical items and educate the public in history
• industry training organisations if they are for the public benefit and not only for particular businesses
• kindergartens
• parents and friends groups of non-government schools
• parents and citizens groups of government schools
• pre-schools
• public universities
• schools and colleges run by religious denominations
• school and university sports organisations where they are integrated with the advancement of education in charitable education institutions
• scholarship trust funds set up to give scholarships for students of a particular school
• Scouts and Guides
• student union bodies if they are integrated in a particular university or college
• Sunday school associations
• trust funds distributing solely to educational charities

Non-charities examples

• childcare centres
• computer users clubs
• educational trusts for individuals, family members or employees of particular employers
• lobbying bodies which promote a particular view, for example organisations promoting euthanasia, the rights of the unborn child or funding of education
• occupational associations which educate only members
• playgroups
• professional associations for accountants, lawyers, writers, sales people, etc
• public speaking associations
• social clubs and organisations including ex-student associations
• sporting organisations even where they involve school-age children as participants, for example a junior football club
• teachers associations which further the professional interests of teachers or represent their views
• trade unions such as academic staff associations and teachers unions

Environment

Description

Non-profit entities that operate for the public benefit to protect, preserve, care for, and educate the community about the environment are charities.

Lobbying and political bodies are not charities.

Charities examples

• conservation bodies which help protect the environment provided they are not for lobbying or political purposes
• environmental associations whose purpose is to educate the public about environmental issues
• flora and fauna conservation societies which are not political or lobbying in nature
• friends of botanic gardens
• Landcare groups and other greening organisations involved in tree-planting and revegetation
• marine conservation societies which are involved in the conservation of Australia's coastal areas or coral reefs
• natural resource organisations which educate the public about the wise use of Australian resources such as soil, water and forests
• support groups for national parks

Non-charities examples

• bushwalking clubs
• government instrumentalities carrying out the ordinary functions of government
• lobbying bodies even if their activities may have consequences for the environment
• outdoor recreation clubs
• political bodies
• resident action groups set up to oppose planning policies detrimental to their lifestyle
• watersports clubs

Health

Description

Non-profit entities that operate for the public benefit to advance health are charities.

Organisations run for the profit of their owners or the common interests of members (for example health funds) are not charities. Lobbying and political bodies are not charities.

Charities examples

• accommodation services for the relatives of hospital patients
• alcohol and drug education bodies
• Alzheimer's associations
• arthritis foundations
• associations supporting nursing mothers
• auxiliaries of public hospitals
• alcohol drug rehabilitation services
• family planning services and contraception organisations
• family support services providing services such as counselling
• health promotion bodies for example cancer councils, diabetes societies, epilepsy associations, heart and asthma foundations
• medical counselling organisations for psychiatric illnesses and disorders
• medical research bodies
• natural family planning organisations
• nursing services
• patient transport services
• pregnant women support services
• support groups for sufferers of a particular disease or disorder, for example drug dependence or chronic fatigue syndrome
• trust funds distributing to charities that promote health or relieve sickness
• women's shelters

Non-charities examples

• friendly societies that are not carried on solely for the relief of poverty
• health benefit funds
• hospitals run by mutual societies or for-profit entities
• hospital benefit funds
• medical benefit funds

Indigenous persons

Description

Non-profit entities that operate for the public benefit to advance the condition and welfare of Australian indigenous persons are charities.

Organisations run for the profit of their owners or the common interests of members (for example business associations) are not charities. Lobbying and political bodies are not charities.

Charities examples

• Aboriginal and Islander health and welfare bodies
• Aboriginal and Islander legal services
• cultural organisations for indigenous art, dance or history
• educational and resource centres for Aborigines and Islanders
• family support services for Aborigines and Islanders
• housing co operatives for Aborigines and Islanders
• research organisations into Aboriginal and Islander affairs
• youth services for Aborigines and Islanders

Non-charities examples

• lobbying and political bodies

Industry, commerce, agriculture

Description

Non-profit entities that operate for the public benefit to advance industry, commerce or agriculture are charities.

Organisations run for the profit of their owners or the common interests of members (for example business associations) are not charities. Providing services to, and furthering the private interests of, businesses or agriculturalists are not charitable purposes. Lobbying and political bodies are not charities.

Charities examples

• agricultural show societies
• apprenticeship and traineeship organisations if they are for the public benefit and not for particular businesses
• industry training organisations if they are for the public benefit and not for particular businesses
• research organisations that make the benefits of their research publicly available

Non-charities examples

• aviation clubs
• breeders associations that represent the interests of breeders and help members in their breeding activities
• business associations which exist for the benefit of members
• co-operatives which provide buying and selling services for members
• development or progress associations campaigning on governmental or planning issues
• employer associations
• farmers and growers bodies advancing the business interests of their farmer or grower members
• hobby farmers associations
• industry regulators
• marketing agencies
• professional associations set up to advance a profession or its members, for example associations of accountants, administrators, doctors, engineers, surveyors, lawyers, secretaries and executives
• retailer or seller associations promoting or marketing businesses and their products
• trade unions

Locality or neighbourhood

Description

Non-profit entities that operate for the public benefit to provide charitable benefits for a particular town, city or region are charities.

Organisations will not be charities simply because they operate in a particular region. For example, a social club for the residents of a particular suburb is not a charity.

Charities examples

• accommodation providers for the needy
• citizens advice bureaus
• community information and referral services which make people aware of rights and responsibilities and the services and facilities available to them
• community justice and mediation centres which provide informal dispute resolution services
• crisis accommodation services
• family support services providing services such as counselling
• health information organisations which collect and disseminate health information
• historical societies whose purpose is to preserve historical items and stimulate interest in history
• information, translating and interpreting services for migrants
• marriage counselling organisations
• migrant resource centres
• multiple birth organisations
• neighbourhood centres
• public radio stations
• relationships counselling organisations
• surf lifesaving clubs
• telephone crisis counselling services
• women's shelters
• associations supporting the work of the United Nations

Non-charities examples

• expatriate organisations providing a social forum for people from a particular country
• lobbying groups
• political parties
• republican or monarchist organisations
• recreational clubs promoting sporting or recreational activities in a region
• resident action groups lobbying on development or planning issues
• social clubs for newcomers to a particular residential area
• traditional service clubs

Moral improvement

Description

Non-profit entities that operate for the public benefit to advance moral improvement in society are charities.

Lobbying and political bodies are not charities.

Charities examples

• alcohol and drug education bodies
• community justice and mediation centres which provide informal dispute resolution services
• ethical societies
• marriage counselling organisations
• relationships counselling organisations
• road safety organisations which educate on dangers of drink-driving, fatigue or dangers of speeding
• temperance societies
• associations supporting the work of the United Nations

Non-charities examples

• lobbying and political bodies on issues such as morals, animals, the environment etc.
• fraternal associations

People with disabilities

Description

Non-profit entities that operate for the public benefit to relieve needs arising from physical or mental disability are charities.

Organisations catering for people with disabilities, but not for the relief of their special needs, (such as purely social or recreational bodies) are not charities. Lobbying and political bodies are not charities.

Charities examples

• Braille libraries
• carer support services
• community organisations that provide food, home visits and assistance with shopping for people with disabilities
• disability resource centres
• disability employment services
• guide dog associations
• information support services for people with disabilities and their carers
• intellectually handicapped associations
• respite care services
• sheltered workshops
• spastic societies
• support organisations for people with particular disabilities, for example autism, cerebral palsy, Down's syndrome, hearing or sight impairment, and paraplegia
• toy libraries for the handicapped
• trust funds distributing solely to charities that relieve disability

Non-charities examples

• lobbying bodies

Poverty

Description

Non-profit entities that operate solely to relieve poverty are charities.

Charities examples

• accommodation providers for the needy
• community services that provide food to the elderly and infirm
• crisis accommodation services
• hostels for the homeless
• overseas aid organisations
• prisoners aid associations
• refugee relief bodies
• soup kitchens
• trust funds distributing solely to charities that relieve poverty

Non-charities examples

• lobbying and political bodies

Public works and utilities

Description

Non-profit entities that operate for the public benefit by providing socially necessary facilities for use by the community are charities.

Government instrumentalities carrying out the ordinary functions of government are unlikely to be charities.

Charities examples

• botanic gardens
• halls provided for public use
• law reporting councils
• public art galleries
• public libraries
• public museums
• observatories
• trusts for places of historic interest
• providers of public recreational facilities, such as sporting fields and public parks
• public radio stations
• showground societies

Non-charities examples

• fee-for-service providers of normal amenities such as cinemas and shops
• government instrumentalities carrying out the ordinary functions of government

Religion

Description

Non-profit entities that operate for the public benefit to advance religion in a direct and immediate sense are charities.

Religion involves belief in a supernatural being, thing or principle and acceptance of canons of conduct which give effect to that belief.

Charities examples

• Bible colleges
• Bible societies distributing religious literature
• building funds for the construction, maintenance or furnishing of church buildings, mosques, synagogues etc
• church choirs
• churches and other religious congregations
• clergy funds to maintain priests, pastors, ministers of religion, students for the ministry etc
• institutions of missionaries
• religious instruction funds for teaching religion in schools
• religious orders but not orders which do not act for the public benefit
• religious retreat bodies for lay persons
• seminaries
• Sunday school associations

Non-charities examples

• family companies controlled by family members and friends, even where they practice religion
• for-profit entities that sell religious books, artefacts and other materials
• fraternal associations
• lobbying bodies, for example groups applying pressure on church governance issues
• self-betterment groups which are designed to enhance personal success
• social clubs for the followers of a particular religion

Research

Description

Non-profit entities that operate for the public benefit by carrying out research are charities. The subject matter of the research must be useful to the community (for example agriculture, education, health, indigenous culture, public administration or water) and the results must be made publicly available.

Lobbying bodies that carry out research to promote their aims are not charities.

Non-charities examples

• business research bodies if the research is primarily for particular businesses or groups of businesses
• lobbying bodies whose research is only a means for their lobbying aims

Science

Description

Non-profit entities that operate for the public benefit by advancing science are charities.

Professional associations carried on for the benefit of a profession or its members (such as engineers, doctors, or surveyors) and other organisations run for the benefit of their members are not charities. Hobby groups are not charities.

Charities examples

• archaeological societies
• astrono mical societies that are not hobby groups
• botanical societies
• geographical societies
• herpetological societies that are not hobby gr oups
• scientific research organisations

Non-charities examples

• business associations
• employer associations
• industry regulators
• professional associations
• trade unions

Unemployment

Description

Non-profit entities that operate for the public benefit to relieve needs arising from unemployment are charities.

Organisations run for the profit of their owners or the common interests of members are not charities. Lobbying and political bodies are not charities.

Charities examples

• apprenticeship or traineeship organisations if they are for the public benefit and not for particular businesses
• vocational guidance counselling bodies that are non-profit
• disabled persons employment services
• prisoner employment services for recently released prisoners
• training organisations if they are non-profit and operate for the public benefit

Non-charities examples

• commercial enterprise entities are not charities merely because they take on unemployed people
• employers will not be charities merely because they provide employment opportunities for disadvantaged people
• recruitment organisations for employers

Young persons

Description

Non-profit entities that operate for the public benefit to assist, educate and develop young people are charities. Sporting, social and recreational groups are not charities.

Charities examples

• child abuse associations which exist to prevent cruelty to, or exploitation of, children and are not political or lobbying in nature
• children's disease organisations, such as asthma foundations and cancer foundations
• child health associations
• children's disability organisations which provide services and information to carers of children with disabilities
• information services for young people providing advice and support on a range of issues such as health and accommodation
• youth development programs, for example Scouts, Brownies and Guides
• youth orchestras
• youth leadership associations
• youth suicide organisations

Non-charities examples

• childcare centres
• playgroups
• sporting organisations for the young, for example cricket and junior football.

If you are a charity chapter 1 gives an explanation of your income tax status. Charities are not automatically exempt from income tax and must be endorsed by the ATO.

As explained earlier, if you are not a charity, this guide does not apply to you. The income tax status of corporations and unincorporated associations that are not charities is explained in ClubPack which is available from the ATO by phoning 13 24 78.

Need more information?

Further information about what constitutes a charity for taxation purposes is available from the sources listed in this guide.

Appendix 2 - List of definitions

Australian Business Number (ABN)

The Australian Business Number is the new identifier for your dealings with the ATO and for future dealings with other departments and agencies.

Business Activity Statement

This is the single form you use to account for GST and some other taxes at the end of each tax period under The New Tax System.

Organisations not registered for GST will use an Instalment Activity Statement to report their entitlements and obligations.

Charity

A charity is an institution or fund established for a charitable purpose. Charitable purposes are those which the law regards as charitable. The term 'charitable' has a technical legal meaning which is different from its everyday meaning. Charitable purposes are:

• the relief of poverty or sickness or the needs of the aged
• the advancement of education
• the advancement of religion, and
• other purposes beneficial to the community.

Charitable fund

A charitable fund is a fund established under an instrument of trust or a will for a charitable purpose. Charitable funds mainly manage trust property, and/or hold trust property to make distributions to other entities or persons.

Charitable institution

A charitable institution is an institution that is established and run to advance or promote a charitable purpose.

Deductible gift recipient (DGR)

A DGR is an entity that is entitled to receive income tax deductible gifts. All DGRs have to be endorsed, unless they are named specifically in the income tax law. There are two types of DGR endorsement: one for entities in their own right and the other for an entity that is only a DGR in relation to a fund, authority or institution it operates. For the second type, only gifts to the fund, authority or institution are tax deductible.

Entity

An entity is an individual (for example a sole trader), a body corporate (a company), a corporation sole (an ongoing paid office, for example a bishopric), a body politic, a partnership, an unincorporated association or body of persons, a trust, or a superannuation fund.

Fringe benefits tax (FBT)

FBT is a tax payable by employers who provide fringe benefits to their employees or associates of their employees.

Goods and services tax (GST)

GST is a broad-based tax of 10 per cent on the supply of most goods, services and anything else consumed in Australia and the importation of goods into Australia.

GST-free

If a supply is GST-free you do not charge GST on the supply, but you are entitled to input tax credits for anything acquired or imported for use in your activities.

Income tax exempt charity (ITEC)

An ITEC is a charity that has been endorsed by the ATO as exempt from income tax.

Input tax credits

When you pay GST on any taxable supplies you purchase or acquire for use in your activities, you can claim these amounts (called input tax credits) back from the ATO.

Input taxed supplies

If a supply is input taxed you do not charge GST on the supply, but neither are you entitled to input tax credits for anything acquired or imported to make the supply.

Non-profit

An organisation is non-profit if it is not carried on for the profit or gain of its individual members. This applies for direct and indirect gains, and both while the organisation is being carried on and on its winding up. The ATO accepts an organisation as non- profit if its constitution or governing documents prohibit distribution of profits or gains to individual members and its actions are consistent with the prohibition.

Non-profit sub-entity

Certain non-profit organisations with independent branches (units) have the option of treating their units as if they were separate entities for GST purposes and not part of the main organisation. A non-profit sub-entity of a charity is not entitled to its own separate ITEC endorsement.

Pay As You Go (PAYG) instalments

PAYG instalments replaces provisional tax and company and superannuation fund instalments tax. Under PAYG instalments, taxpayers who are notified by the ATO of an instalment rate will be required to pay their own tax by regular self-assessed instalments.

Pay As You Go (PAYG) withholding

PAYG withholding requires an entity to withhold an amount if it makes certain listed payments including salary, wages, commission, bonuses or allowances to an employee, directors' fees, payments for a supply (goods or services) to another business which does not quote an ABN and certain dividend, interest and royalty payments.

Public benevolent institution (PBI)

A PBI is an institution organised for the direct relief of poverty, sickness, suffering, distress, misfortune, disability or helplessness. The characteristics of a PBI are:

• it is set up for needs that require benevolent relief
• it relieves those needs by directly providing services to people suffering them
• it is carried on for the public benefit
• it is non-profit
• it is an institution, and
• its dominant purpose is providing benevolent relief.

More information on PBIs can be found in the ATO's guide GiftPack.

Supplies

Supplies include the goods and services you sell as part of your activities. Not all supplies are taxable supplies.

Taxable supply

The term is widely defined to include most supplies (goods, services and anything else) you make. A supply is not a taxable supply if it is GST-free or input taxed.

Appendix 3 - Charity Pack Worksheet

Appendix 3 - Worksheet - reviewing your ITEC endorsement

This worksheet will help you work out whether you are st ill entitled to endorsement as an income tax exempt charity (ITEC). Do not write on the original worksheet keep it as a template so that you can make copies whenever you carry out a self-review.

ITECs must tell the ATO if they stop being entitled to endorsement. Things that can affect your entitlement are changes to your purpose and operations, physical presence in Australia, loss of endorsement as a deductible gift recipient (DGR) and where you incur your expenditure. You should self-review each year and whenever there is a major change in your structure or operations.

Keep it with your records of organisation as it will help future office bearers.

Who should use this worksheet

All charities that have been endorsed as ITECs should use this worksheet.

What you will need

• a copy of CharityPack (and the latest CharityPack Updater)
• the ATO notice that states you are endorsed as an ITEC, and
• your governing or constituent documents, and information about your activities and finances.

1. Full name of the organisation

2. Australian Business Number (ABN)

3. Tax file number (TFN)

4. Period of review

To

5. Reason for review

Annual review

Change in circumstances

Other please specify.....................................

6. Date of endorsement on ATO notice

AUSTRALIAN BUSINESS NUMBER (ABN)

7. Is your ABN still current?

	Yes Go to question 8.
	No You are no longer entitled to be endorsed as an ITEC. The ATO will notify you that your endorsement has been revoked.

You must have a current ABN to be entitled to endorsement as an ITEC.

ABNs are explained. The ABN is a single business identifier used for dealings with government departments and agencies.

You can check on your ABN by searching the Australian Business Register (ABR) internet site at www.business.gov.au or by calling the ATO on 13 24 78. If your ABN has been cancelled, you will have received written notification of this.

CHARITY

8. Are you a charity?

	Yes Go to question 9.
	No You are no longer entitled to be endorsed as an ITEC. You must tell the ATO that you have ceased to be entitled to ITEC endorsement and give the date that you ceased to be a charity.

It is possible that an organisation can cease to be a charity. You must verify if you are still a charity.

The meaning of the term 'charity' is explained in appendix 1 of CharityPack, 'Are you a charity?'

A charity is an institution or fund established and operated for purposes which are charitable. Charity has a legal meaning for taxation purposes which differs from how the term is used in everyday language.

Appendix 1 explains charitable purposes and gives examples of organisations that are considered to be charities and those that are not.

NOTES: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

CHARITABLE INSTITUTION OR CHARITABLE FUND

9. Are you a charitable institution or a charitable fund?

	Charitable institution Go to question 10.
	fund Go to question 11.

The distinction between charitable institutions and charitable funds is explained in chapter 1 of CharityPack.

To be a charitable fund you must be established under an instrument of trust or a will for public charitable purposes. Charitable funds mainly manage trust property and/or hold trust property to make distributions to other entities or persons.

Charitable institutions mainly carry out charitable activities rather than holding or managing property.

NOTES: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

CHARITABLE INSTITUTIONS

10. Do you meet at least one of the three tests: physical presence, deductible gift recipient and prescribed by law?

	Yes You are eligible to retain your endorsement as an ITEC. Go to the end of the worksheet.
	No You are no longer entitled to be endorsed as an ITEC. You must tell the ATO in writing and give the date that you ceased to be entitled.

You must meet at least one of the following tests:

Physical presence

you have a physical presence in Australia, and to the extent of your Australian presence, you pursue your objectives and incur your expenditure principally in Australia

Deductible gift recipient

you are a deductible gift recipient (DGR), or

Prescribed by law

you are a prescribed institution listed by name in the income tax regulations, and

• you are located outside Australia and you are income tax exempt in your country of residence, or
• you have a physical presence in Australia and incur expenditure and pursue objectives principally outside Australia.

These tests are explained further in chapter 1 of CharityPack.

NOTES: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

CHARITABLE FUNDS

11. Is the charitable fund being applied for the purposes for which it was established?

	Yes Go to question 12.
	No You are no longer entitled to endorsement. You must tell the ATO in writing and give the date that you ceased to be entitled.

ITECs that are charitable funds must be applied for the purposes for which they were established.

If you use all your property and income only and fully for your charitable purposes, you will meet this requirement.

This is explained further in chapter 1 of CharityPack.

NOTES: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

TYPE OF CHARITABLE FUND

12. Which of these three best describes you?

	established by will before 1 July 1997 and after that date you have received assets under a will or assets for which you did not give valuable consideration. Go to question 13.
	established by will before 1 July 1997. You continue to be entitled to endorsement as an ITEC. Go to the end of the worksheet.
	Established in Australia and established by instrument of trust, or established by will on or after 1 July 1997. Go to question 14.

Different conditions apply for different sorts of charitable fund.

If you were established by will before 1 July 1997 there are two different situations. You must decide whether the first or second box best describes you. Do not choose the second box if the first box applies. If the first box applies, you will be treated as two separate parts: an 'old trust' and a 'new trust'. You will need to meet further requirements to be entitled to endorsement for the 'new trust'. The 'new trust' and the further requirements are explained in the instructions for question 13. The 'old trust' does not need to meet the further requirements.

If you are best described by the third box, you will have to meet further requirements to be entitled to endorsement. The instructions for question 14 explain this.

NOTES: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

13. Does the part of the charitable fund that is the 'new trust' meet at least one of the four tests: Australian purposes, deductible gift recipient, Australian distribution and gift distribution?

	Yes You continue to be entitled to endorsement as an ITEC. Go to the end of the worksheet.
	No The 'old trust' continues to be entitled to ITEC endorsement. However, the 'new trust' is not entitled. You must tell the ATO in writing that the 'new trust' is not entitled to endorsement and give the date it ceased to be entitled.

The tests are explained in chapter 1 of CharityPack.

The 'new trust' must meet at least one of these tests in order to retain ITEC endorsement. You will need to work through the four tests.

The 'new trust' is the part of the charitable fund that comprises:

• assets that become part of your trust property under a will on or after 1 July 1997
• assets you received on or after 1 July 1997 for which you did not give valuable consideration (for example, distributions received from other trusts), and
• income derived from these assets.

The 'new trust' is explained further in chapter 1 of CharityPack.

The part of you that is not the 'new trust' is the 'old trust'. Even if you are no longer entitled to be endorsed for the 'new trust', your endorsement for the 'old trust' continues.

NOTES: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

14. Do you meet at least one of the four tests: Austral ian purposes, deductible gift recipient, Australian distribution and gift distribution?

	Yes You are entitled to endorsement as an ITEC.
	No You are not entitled to endorsement as an ITEC. You will need to tell the ATO in writing and give the date you ceased to be entitled.

The tests are explained in chapter 1 of CharityPack. You will need to work through them to determine your eligibility to endorsement as an ITEC.

NOTES: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Once you have completed this worksheet you should:

• sign it off and keep it with your organisation's other records, and
• make an entry in the log at the back of CharityPack showing you have conducted the review.

Name of person conducting review -----------------------------------------	Position held ----------------
Signature --------------------------	Date --------------
Approval by Board/Committee/Trustee -------------------------------------------------- -------------------------------------------------- --------------------------------------------------

Appendix 4 - Log of ITEC status reviews

We recommend you make an entry in this log each time you conduct a self-review of your ITEC status. Self-reviews are explained Self-review am I still entitled to endorsement?

Period reviewed		Person conducting review	Position held	Signature	Date
Start date	End date

Record your organisation's key information in the table below:

Name of organisation
Australian Business Number
Tax File Number
Date of endorsement on ATO notice

Need more information?

If you would like to find out more about charities and The New Tax System:

• phone the business Tax Reform Infoline on 13 24 78
• download information from our web site at www.taxreform.ato.gov.au
• obtain A Fax From Tax on 13 28 60, or
• write to us at PO Box 9935 in your capital city.
• If you do not speak English and need help from the ATO, phone the Translating and Interpreting Service (TIS) on 13 14 50.
• People with a hearing or speech impairment can phone the Telephone Typewriter Service on 1300 130 478.

Contact: [name] | Phone: [number]

Section: [section] | BSL: [bsl]

Last Update: [11/04/2002]

ATO references:
NO NAT 3131