Revised Income Tax Guide for Not for Profits

The Australian Tax Office has updated the Income tax guide for non-profit organisations replacing the version issued in May 2003.

The guide has been updated to allow for the changes in tax law and include:
– a statutory extension to the meaning of charity,
– extended endorsement requirements for charities, and
– changes to the Australian Business Register for charities.

This publication applies from 1 July 2004.

This guide has been prepared for Not for Profit organisations including charities, clubs, societies and associations. It is aimed at voluntary treasurers, office bearer or employees administering an organisation.

Only certain types of NFP organisations are exempt from income tax, so this guide will helps work out if your organisation is exempt.

If your organisation is a charity, it will need to meet special requirements to be exempt from income tax. Charities are not automatically exempt – there is an endorsement process under which they apply to the Tax Office. This guide includes detailed information about what is a charity and the endorsement requirements that apply to charities.

It explains the income tax treatment of NFP organisations that are not exempt – that is, taxable organisations. Many non-profit organisations are taxable and may have to lodge income tax returns and pay income tax. They may also have special rules for calculating taxable income, lodging income tax returns and special rates of income tax.

ORGANISATIONS NOT COVERED
This guide does not cover the special tax arrangements for certain friendly societies, trade unions and employee associations (registered organisations) that are exempt for only some of their income

Regardless of whether your organisation is exempt from income tax, other taxes and concessions may apply – for example, in relation to goods and services tax, fringe benefits tax and pay as you go.

The Guide highlights recent changes in the income tax law relating to non-profit organisations as well as proposed changes that are not yet law.

STATUTORY EXTENSION TO THE MEANING OF CHARITY
From 1 July 2004 a statutory extension to the common law meaning of charity has been introduced. The statutory extension allows the following organisations to be treated as charities for the purposes of all Commonwealth legislation:
– organisations providing child care to the public on a non-profit basis
– self-help bodies with open and non-discriminatory membership that are for charitable purposes only, and
– closed or contemplative religious orders that offer prayerful intervention to the public.

EXTENDED ENDORSEMENT REQUIREMENTS FOR CHARITIES
From 1 July 2005 additional endorsement requirements commence for charities. A charity will need to be endorsed to access charity tax concessions available under fringe benefits tax and GST laws. This is in addition to the endorsement requirement for income tax exemption which applies to charities from 1 July 2000. The ATO wrote to organisations that are endorsed as income tax exempt charities in recent weeks advising them of their entitlements under the new endorsement measures.

CHANGES TO THE AUSTRALIAN BUSINESS REGISTER FOR CHARITIES
From 1 July 2005 changes to the Australian Business Register (ABR) at www.abr.business.gov.au will be introduced so that a charity’s endorsements for tax concessions can be viewed by the public.

CHANGES TO TAX CONCESSIONS FOR PHILANTHROPY
Changes to tax concessions relating to philanthropy have also been proposed which, if passed, will increase the flexibility of how charitable funds, ancillary funds and prescribed private funds distribute money.
If passed, these changes will come into effect at the start of the income year following the date the bill receives Royal Assent.

If you would like an electronic version of the 96 page guide in PDF format just send us an email with the words Revised ATO Income Tax Guide in the subject line to probono@probonoaustralia.com.au

You can order a paper copy by phoning the ATO on 1300 720 092 and quoting NAT number 7967 (this is a unique national identifying number given to each ATO publication).