Charity tax concessions: is your charity making the most of its charity status? - Wolters Kluwer CCH
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Charity tax concessions: is your charity making the most of its charity status?

Contributed by Darren Fittler, Partner, Elizabeth Lathlean, Lawyer, Kate Pipe, Consultant, Gilbert + Tobin

One of the main reasons organisations seek charity registration with the Australian Charities and Not-for-profits Commission (ACNC) is to gain access to the Commonwealth’s charity tax concessions, which are administered by the ATO.

In this article we explain what the Commonwealth charity tax concessions are, which charities they are available to and how your organisation can obtain them. Please note this article does not explain other tax concessions that may be available from state and territory governments such as payroll tax, land tax and stamp duty. Instead, this article focuses exclusively on the applicability of the Commonwealth charity tax concessions to charities registered with the ACNC (though we note not-for-profit organisations may also be eligible for certain tax concessions).

What Commonwealth tax concessions are available to ACNC registered charities?

The main Commonwealth tax concessions available to ACNC registered charities are:

  • income tax exemption
  • goods and services tax (GST) concessions
  • fringe benefits tax (FBT) rebate
  • FBT exemption
  • deductible gift recipient (DGR) endorsement.

However, not all ACNC registered charities are eligible for all Commonwealth charity tax concessions. Below we have explained what these tax concessions are and outlined which charities are eligible for each concession.

Income tax exemption

Normally, organisations have to pay income tax on income earned. However, all charities registered with the ACNC are eligible for income tax exemption. Charities endorsed as income tax exempt are not required to pay income tax and are not required to lodge an annual income tax return.

Organisations can apply for income tax exemption at the time they apply for ACNC charity registration through the ACNC charity application. If an organisation is already registered as a charity with the ACNC but has not obtained income tax exemption, it can apply for income tax exemption directly from the ATO using the Application for endorsement for charity tax concessions form.

GST concession

GST is a broad-based tax of 10% on most goods and services sold or consumed in Australia. All ACNC registered charities are entitled to the GST concession, which helps reduce their GST liability.

Importantly, the GST concession does not exempt ACNC registered charities from paying GST on goods or services. Instead, this concession allows ACNC registered charities to calculate their GST liability in a more favourable way compared to other organisations.

Whilst there are many ways to reduce GST liability with the GST concession (all of which can be found at the ATO website), the most notable are:

  • ACNC registered charities are not required to be registered for GST unless their annual GST turnover (being, gross income minus GST) is $150,000 or more (which is twice the amount as for for-profit enterprises), and
  • gifts to ACNC registered charities are not subject to GST as long as the gift is made to the charity voluntarily and not subject to conditions and as long as the provider of the gift does not receive a material benefit in return.

Organisations can apply for the GST concession at the time they apply for ACNC charity registration through the ACNC charity application. If the organisation is already registered as a charity with the ACNC but has not obtained the GST concession, it can apply for the GST concession directly from the ATO using the Application for endorsement for charity tax concessions form.

FBT rebate

FBT is a tax paid on fringe benefits, which are benefits provided by employers to employees other than salary and superannuation. Fringe benefits include, for example, the provision of a work car, a work phone, gym memberships and meal plans.

Organisations that qualify for the FBT rebate are able to reduce their FBT liability by a rebate. Currently the rebate is equal to 47% of the gross FBT payable, subject to a $30,000 capping threshold per employee.

The FBT rebate is available to all ACNC registered charities that are institutions, other than charities registered as a public benevolent institution (PBI) or a health promotion charity (HPC) (which are instead entitled to the FBT exemption, detailed below).

Organisations can apply for the FBT rebate concession at the time they apply for ACNC charity registration through the ACNC charity application. If the organisation is already registered as a charity with the ACNC but has not obtained the FBT rebate concession (but is otherwise eligible), it can apply for the FBT rebate concession directly from the ATO using the Application for endorsement for charity tax concessions form.

To claim the FBT rebate (after the FBT rebate concession has been obtained), an organisation must be registered for FBT (see the ATO’s Registering for FBT page to find out how to register). For more information on how to claim the FBT rebate, see the ATO’s Not-for-profit employers – completing your 2020 FBT return page.

FBT exemption

Charities registered with the ACNC as a PBI or HPC are eligible for the FBT exemption. If obtained, this means they do not need to pay FBT on fringe benefits provided to employees to a capped amount. The current cap for PBIs and HPCs is $30,000 per employee.

Charities that are exempt from FBT and that have not exceeded the $30,000 cap per employee are not required to register for FBT with the ATO or lodge an FBT return.

Organisations can apply for the FBT exemption at the time they apply for ACNC charity registration through the ACNC charity application. If the organisation is already registered as a charity with the ACNC but has not obtained the FBT exemption (but is otherwise eligible) it can apply for the FBT exemption directly from the ATO using the Application for endorsement for charity tax concessions form.

Deductible gift recipient (DGR) endorsement

Organisations endorsed as DGRs are entitled to receive tax-deductible gifts and to issue tax deductible receipts. Where gifts are tax deductible, donors can deduct the amount of their gift from their taxable income when they lodge their income tax return. Notably only genuine gifts (ie gifts freely given for no material reward) of $2 or more are tax deductible. Deductible gifts can be monetary gifts or gift of property (including financial assets such as shares).

Not all charities are entitled to DGR endorsement. In fact, only about 38% of registered charities are DGRs. To obtain DGR endorsement an organisation must fit within one of over 50 DGR endorsement categories, which can be found on the ATO’s Types of DGRs page.

Where an organisation is seeking DGR endorsement as a PBI or HPC, it must be registered as a charity with the ACNC. Organisations can apply for DGR endorsement as a PBI or HPC at the time they apply for ACNC charity registration through the ACNC charity application. Otherwise, if the organisation is already an ACNC registered charity, its charity subtypes can be changed through the Charity Portal to become a PBI or HPC (and in doing so it can apply for DGR endorsement).

Organisations seeking endorsement as a DGR for a category other than as a PBI or HPC need to either apply directly to the ATO using the Application for endorsement as a deductible gift recipient form or apply to:

  • the Department of Environment for listing as a DGR on the Register of Environmental Organisations
  • the Department of Communications and the Arts for listing as a DGR on the Register of Cultural Organisations
  • the Department of Social Services for listing as a DGR on the Register of Harm Prevention Charities
  • the Department of Foreign Affairs and Trade for endorsement as a DGR under the Overseas Aid Gift Deduction Scheme.

Please note: The DGR regulatory regime does change from time to time and we expect some movement with respect to the above listed DGR endorsement channels as it has been proposed that these categories be moved under the regulatory mandate of the ACNC.

This article was originally published on the Gilbert + Tobin website and has been reproduced with permission.