What Is The Income Tax Benefit Of an NGO?

Are you involved with a not-for-profit organisation in Australia and curious about the income tax benefits it may be entitled to? Whether you’re part of a registered charity or a non-charitable organisation, understanding the complexities of income tax regulations can have a significant impact on your community efforts.

In this comprehensive blog, we’ll explore the income tax exemptions available to Australian NGOs, breaking down the essential requirements and advantages.

Charities and Income Tax Exemption

Under Australian tax law, not-for-profit organisations must pay income tax on their ‘taxable income’ unless they qualify for an exemption. Suppose your organisation is a registered charity with the Australian Charities and Not-for-Profits Commission (ACNC) and endorsed by the Australian Taxation Office (ATO) as income tax-exempt. In that case, you may not need to pay income tax.

To access the income tax exemption, your organisation must be registered with the ACNC and endorsed by the ATO. Registering with the ACNC can also allow you to apply for other tax concessions simultaneously, including the income tax exemption.

Income Tax Exemption Benefits

Obtaining an income tax exemption, whether through ATO endorsement or self-assessment, offers several advantages for your community organisation:

• No Income Tax Payment: Your organisation will not have to pay any income tax, relieving the financial burden.
• No Tax Returns: In most cases, you won’t need to lodge tax returns. However, there can be exceptions, so it’s essential to stay informed about your obligations.
• New Reporting Requirement (From July 2023): Non-charitable not-for-profit organisations with an active Australian Business Number (ABN) self-assessing as income tax-exempt must submit an annual self-review return with the ATO. This differs from a tax return.

Obligations for Employees

It’s important to note that while your organisation may be income tax exempt, the exemption doesn’t apply to income tax payable by your employees. Your organisations must still:

• Collect PAYG Withholding: Collect ‘pay as you go’ withholding amounts from certain payments, such as salaries and wages.
• Comply with FBT Obligations: Fulfil any fringe benefits tax (FBT) obligations, though exemptions or rebates may be available for specific organisations.
• Meet Superannuation Guarantee Obligations: Comply with superannuation guarantee obligations.

Additional Considerations for GST

Income tax exemption for not-for-profit organisations does not cover Goods and Services Tax (GST). Depending on your organisation’s activities, you may have GST obligations, and the registration threshold is $150,000 annually, higher than the general threshold of $75,000.

Self-Assessment for Income Tax Exemption

Suppose your organisation is not eligible to register as a charity. In that case, you may still qualify for income tax exemption if you fall into one of the specified non-charitable not-for-profit categories. These categories include community service organisations, cultural organisations, educational organisations, scientific organisations, sporting organisations, resource development organisations, health organisations, and employment organisations.

Additional ATO Requirements

To access the income tax exemption, both registered charities and organisations falling into non-charitable categories must meet one of three ATO ‘tests’:

• Physical Presence in Australia
• Deductible Gift Recipient Endorsement
• Prescribed by Name in Income Tax Regulations (located outside Australia)

Ensure your organisation complies with all the substantive requirements in its governing rules and applies its income and assets solely for its established purpose.

Conclusion

Knowing the income tax benefits available to your Australian NGO is crucial for financial sustainability and compliance with tax laws. Therefore, to understand tax regulations for NGOs, you do require advice from professional tax or legal advisors. For this, you can rely on KPG Taxation, which has expert tax accountants who will ensure compliance and avoid any pitfalls.