This information is general in nature and you should consult your accountant or tax professional to ensure you receive the right advice for your situation.
Little Phil is passionate about supporting nonprofits across Australia. So to help our charity managers and individuals prepare for the new financial year ahead, we've compiled a list of useful information regarding tax concessions in Australia.
Charity registration with the Australian Charities and nonprofits Commission (ACNC) comes with many advantages. For one, it gives your charity a level of credibility and accountability that unregistered charities may not have. Additionally, being registered with the ACNC means your charity is automatically listed on the Australian Government's Charities Register, which makes it easier for people to find and donate to your organisation.
One of the best perks associated with registration however is eligibility for the Commonwealth’s charity tax concessions.
In general terms, a tax concession is a reduction in the quantity of tax or change in the tax system for the benefit of a particular entity. In the case of nonprofit organisations, the Australian Government has introduced a range of concessions that are designed to specifically alleviate their tax burden to make it easier for them to function in a sustainable way. For individuals and business owners, charity tax concessions exist to encourage and incentivize charitable giving. They're only available on organisations registered and verified by the ACNC, and are processed and administered by the Australian Tax Office (ATO).
There are a few different types of charity tax concessions available to registered charities, which are outlined below.
In traditional circumstances, organisations and businesses must pay income tax on their income earned throughout the year. This isn't the case for the charitable sector, which is eligible for an exemption from this tax under certain provisions. Organisations registered with the ACNC are not required to pay income tax nor lodge a yearly income tax return. Income tax exemption is something that must be applied for directly, either during the application process for registration with the ACNC or with the 'application for endorsement for charity tax concessions form' that can be submitted separately.
The General Sales Tax is a broad 10 percent tax on most services and goods sold in Australia. The Australian Government has entitled all ACNC registered charities to the GST concession, which helps reduce their GST liability. Under existing provisions, ACNC registered organisations are not required to be registered for the GST unless their yearly GST turnover (gross income minus GST) is equal to or greater than $150,000. Gifts to ACNC registered organisations are also not subject to GST, so as long as gifts made to a charity are voluntary, not subject to conditions and the offeror of the gift doesn't receive any material compensation or benefit in return. One important thing to note however is that the GST concession does not apply to every transaction made by a charity. Specific provisions are based on the specific case at hand and can be found in further detail on the ATO website.
FBT is a type of tax that's paid on fringe benefits, which are benefits other than salary and superannuation given to employees by employers. Fringe benefits include a range of offerings, but can commonly include things like a work phone, work car, gym membership or meal plans. Organisations that qualify for a rebate on the FBT are able to reduce their FBT liability. The rebate is currently equivalent to 47 percent of gross FBT payable and is subject to a capping threshold of $30,000 per employee.
Charities designated as Public Benevolent Institutions (PBIs) or Health Promotion Charities (HPCs) with the ACNC can be exempt from FBT. If this status is obtained, it means they will not have to pay FBT on fringe benefits provided to workers at the current capped amount of $30,000 per employee. Charities that are exempt from paying FBT and who have not exceeded the $30,000 per-employee limit are not required to register for an FBT or submit an FBT return with the ATO.
Organisations that are endorsed as DGRs are allowed to receive tax-deductible gifts and to also issue tax-deductible receipts. In cases where gifts are considered tax-deductible, donors can subtract the amount of their gift from their total taxable income when lodging their personal income tax return. It's important to take note that this only applies to genuine gifts, as in those that gifts freely offered for no material reward or compensation. They must also be of $2 or more and can be in the form of monetary gifts or gifts of property, as well as financial assets such as shares.
There are a few key ways in which your organisation can make the most of charity tax concessions, including the following.
When it comes to making the most of charity tax concessions, understanding the basics is a good place to start. By being aware of what's available and taking the necessary steps to register, your organisation can make the most of the different concessions that are available to it. This means registering for GST if your turnover is over $150,000 and registering as an exempt charity with the ATO. You may also be eligible for FBT rebates and exemptions - so make sure you research this fully!
It's also important to keep good records of all transactions and donations. This will make it easier to complete your tax return and claim any available concessions come tax time. The ATO recommends keeping electronic copies of receipts, invoices and bank statements, as well as a log of all gifts made (including the donor's name and address).
Donors often have the option of deducting the value of their gift from their taxable income. This can be a great way to reduce your tax bill, so make sure you promote this to your donors! You can do this by including information about gift deductions on receipts, or on your website.
If you’re a DGR registered nonprofit and use Little Phil for your fundraising, then we issue all donors a deductible gift receipt on your behalf. This is to help so you can focus less on fundraising and more on creating impact for your cause.
By taking advantage of the different charity tax concessions available to you, you can make the most of your donations and reduce the amount of tax you pay. Be sure to research what's available and claim what's rightfully yours!