Tax must be paid on income unless tax-free status is granted or the association is a Deductible Gift Recipient. Fringe benefits tax is payable on benefits to employees. GST registration is needed where turnover exceeds $150,000. Permits and licences are still required for fundraising ventures.
Community organisations, unless specifically exempted, will generally be required to pay tax on income and money received from people who are not members. Examples of money received from non-members could include where an organisation holds functions, raffles, street stalls or operates a shop or canteen or otherwise raises income from the public.
Certain community organisations may be eligible to receive tax benefits. These include:
•income tax exemption for charitable and other organisations;
•Deductible Gift Recipient (DGR) status, which means that donations to the organisation are tax-deductible to the person making the donation. Public benevolent institutions (PBIs) are the most common type of deductible gift recipients. PBIs may also receive certain other taxation benefits, for example, an exemption from Fringe Benefits Tax. Generally, to gain PBI status the organisation must be mainly engaged in directly assisting people to relieve their poverty, sickness, suffering, destitution, distress, misfortune or helplessness. Such an organisation will usually have to address these issues in its Constitution, which will also have to contain non-profit and winding-up clauses.
From 3 December 2012 PBIs must be registered with the Australian Charities and Not for Profits Commission (ACNC) as a prerequisite for Australian Taxation Office endorsement as a DGR or to access Fringe Benefits Tax (FBT) exemption.
Organisations may be eligible for other exemptions or discounts on such items as local government rates, telecommunications and utilities. Enquiries should be made directly to the service provider.
Reporting and recordkeeping requirements relating to the FBT began from 1 April 1999. Associations are only liable to pay FBT on benefits provided to an employee or an associate of an employee in respect of their employment. Benefits provided to volunteers will generally not attract FBT as they are not employees.
FBT needs to be recorded on the PAYG payment summaries (formerly group certificates) of employees. For those community organisations that are exempt from the payment of FBT, a limit on the total grossed-up value that an organisation can offer to employees in fringe benefit payments ($30,000) began on 1 April 2001. Further information about Fringe Benefits Tax is available from the Australian Taxation Office website (at www.ato.gov.au).
The new tax system commenced on 1 July 2000 and raises a number of issues for community organisations, regardless of whether an incorporated or unincorporated structure is chosen.
Your association is not required to have an Australian Business Number (ABN) but may need one for business purposes. An ABN is distinct from registration for the Goods and Services Tax (GST), which is discussed below. An ABN is an identifying number for all Australian enterprises (the definition of “enterprise” is very broad and encompasses businesses as well as most community organisations). As a general rule, organisations should apply for an ABN.
Not-for-profit organisations with a turnover of greater than $150,000 per year are required to register for the GST, and may choose to register for the GST where the turnover is lower. If organisations are not registered they do not collect or remit GST to the Tax Office. They will, however, still pay GST on purchases.
Organisations registered for the GST are generally able to claim input tax credits in respect of GST paid. An input tax credit is basically a refund of GST paid. However, organisations which are registered for GST will also have to collect GST. Membership fees as well as charges made for specific purposes will incur GST. There are also significant reporting and accounting requirements.
Organisations should obtain professional advice in relation to the GST generally, as well as in relation to specific questions on issues such as whether your organisation should register for GST, the effect of GST on funding sources and the best way of maintaining cash flow for your organisation in the light of GST remittance obligations. The Tax Office also provides useful general information, including publications on GST and FBT.
Contact the Tax Office by calling the business tax enquiries line (13 28 66) or by going to the website (at www.ato.gov.au).
Community organisations may obtain funds in a variety of ways. It is important to remember that permits or licences will be required for such activities as door-knocks, lotteries or raffles, art unions, street collections, fetes, stalls and selling alcohol. Generally, information will be available at local council offices.
Organisations may apply for grants from government, private citizens, charitable trusts, industry or others. Information on how to make these applications will be available from grant providers. Possessing tax-deductible status can be important to many grant providers.
Organisations should be aware that GST will generally apply to all sponsorship and funding arrangements. GST will generally not apply to donations. Organisations should be aware, however, that sponsorship is defined very broadly and that most forms of public acknowledgment of a contribution will change its character from a donation to a sponsorship, thus attracting GST.