Not-for-profit (NFP) organisations enjoy certain tax concessions that are not available to organisations that are registered as businesses in Australia. To qualify as NFP, the organisation must have for its primary purpose, an activity that is not for profit or gain of its individual members. This does not mean that a NFP entity can never make any profit during its operations or winding up activities. But any profit that may arise in its operations must only be used for pursuing the organisation’s purposes and should not be distributed to the members, owners, or other private people.
Distinctive features of NFP organisation
An organisation is determined as NFP based on its constituent or governing documents. Here are the basic features of NFP entities:
Purpose clause: The organisation’s operations does not involve any activity that is primarily intended to generate profit or gain, whether directly or indirectly, for its individual members;
Profit Distribution clause: The organisation’s constituent documents clearly prohibit the distribution of the organisation’s money or property to its members during its operations;
Dissolution clause: The constituent documents should also contain a clause that clearly prohibits the distribution of money or property to its members on dissolution;
Other essential features of NFP
Outside of the organisation’s constituent documents, the entity’s activities must be consistent with the constituent document’s clauses. Thus, profits, if any, should be used to carry out the purposes of the NFP and should not be distributed to its members. The NFP should also have internal processes which see to it that members of the organisation or private persons do not receive the property or assets of the organisation.
Types of NFPs
Not-for-profit organisations are generally classified as:
Charities; or
Other types of NFP organisations.
Charities are entitled to the highest level of tax concessions but must first be registered with the appropriate agency and must obtain ATO endorsement before they can receive various charity tax concessions such as:
Income tax exemption;
GST charity concessions;
FBT rebate; and
FBT exemption.
Other types of NFPs, however, are not required to obtain an ATO endorsement in order to access the income tax exemption, although they may be subjected to other types of taxes. Work with an experienced tax consultant who can help you register your NFP and comply with your organisation’s applicable tax obligations or access the appropriate tax concessions.
At ATP Tax Accountants our accounting and tax professionals provide a wide range of services to people and businesses throughout Western Sydney. We can help you set up your NFP, choose the right structure, and walk you through the process of accessing various tax concessions applicable in your situation. Call us today at 1-300-829-484 or email us anytime to learn more about how we can help you.
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