A not-for-profit (NFP) organisation is an entity that is operating for its purpose and not for the profit or gain (either direct or indirect) of its individual members.
NFP organisations fall within two broad categories:
• charities, and
• other NFP organisations that are not charities, for example: most sporting and recreational clubs, community service organisations, professional and business associations, and social organisations.
Charities must register with the Australian Charities and Not-for-profits Commission (ACNC) before they can be endorsed by ATO for tax concessions or apply for certain categories of deductible gift recipient (DGR) status. Other NFP organisations that are not charities may be able to self-assess whether they are income tax exempt or taxable and whether they will have access to other tax concessions. They will need to be endorsed by ATO to obtain DGR status.
Legal Structures
The legal structure you choose should meet your organisation's needs now and into the future.
The organisation's legal structure will affect many things, such as:
• its legal identity (whether it can be sued)
• its governance structure (who makes what types of decisions)
• who is liable for its debts and its specific responsibilities
• what its reporting or other compliance obligations are.
Legal structures commonly used by NFP organisations include unincorporated associations, incorporated associations, companies, cooperatives, Indigenous corporations, and trusts. Different legal structures have different reporting requirements and tax obligations.
Tax Concessions
Depending on the type of NFP organisation, different tax concessions are available and the process for accessing each concession varies.
Charities: must be endorsed by ATO to access charity tax concessions.
Other NFP organisations: can generally self-assess – that is, work out for themselves – whether they are entitled to tax concessions.
The tax concessions NFPs may be entitled to access include:
• income tax exemption
• fringe benefits tax (FBT) exemption or rebate
• goods and services tax (GST) concessions
• deductible gift recipient (DGR) endorsement
• refund of franking credits.
To access various concessions and comply with your organisation's tax obligations, your organisation may need to register for an Australian business number (ABN), GST, FBT, pay as you go (PAYG) withholding, fuel tax credits or other taxes.
Deductible Gift Recipients (DGR)
When you receive donations to support your organization, your supporters can claim a tax deduction if you have been endorsed by ATO as a deductible gift recipient (DGR).
All organizations, including charities, must be endorsed by ATO as a DGR if they want their donors to be able to claim a tax deduction.
Registration process
To register your NFP organization follow these steps:
1. Determine / understand your legal structure.
2. Determine if you are an NFP.
3. Register your organization with the Australian Government to obtain an Australian Business Number (ABN). At the same time, you can also register for Goods and Services Tax (GST), Fringe Benefit Tax (FBT), Pay As You Go (PAYG) withholding if your organization requires it.
This article is for informational purposes only and does not form part of our advice.
This article is based on Australia Taxation Office guideline. Please contact our team if you need any assistance.
Claire Chang, 0497 131 419, claire.chang@changadvisory.com.au, WeChat: clairechang26
Michelle Cui, 0433 539 870, michelle.cui@changadvisory.com.au, WeChat: michellejc
Claire Chang