Sometimes when you are starting a new business, particularly if you are setting up an enterprise which is social, ethical and will operate for the good of mankind in general, rather than just acting as another cog in the capitalist/consumer system, you probably should step back and think (for at least 60 seconds) during the initial structuring phase whether you are actually a not for profit enterprise (NFP), before going ahead and incorporating a proprietary company limited by shares (the standard legal vehicle for a for profit enterprise).
Why is this important?
Because if you are an NFP and structure yourself as such (and the legal structures for NFP and for a profit entity are quite different), then you may be eligible for a variety of tax concessions (if not tax deductibility for donations – these are restricted to particular types of charity only).
Don’t imagine that NFPs are confined to entities like the local kids soccer club! One of this country’s largest health insurers, HCF, is a NFP!
Here is an overview of the types of tax concessions available to NFPs can be found on the Australian Taxation Office website.
The table below provides a summary of tax concessions and the types of NFPs that can access them.
The table groups NFPs as follows:
- registered charities – including registered public benevolent institutions and registered health promotion charities
- other non-profit organisations.
The table also refers you to more information about each concession.
There are also concessions for:
- public and non-profit hospitals and public ambulance services
- registered religious institutions and GST concessions for charities, gift deductible entities and government schools
- non-profit companies and live-in residential care workers.
It is important to check the notes to the table, as your organisation may need to meet certain requirements before it can access a concession.
TABLE: Summary of tax concessions and types of non-profit organisations
Notes to table
- The organisation must be endorsed by us to access this concession.
- Only certain types of non-profit organisations are exempt from income tax. Many non-profit organisations are taxable, but may be entitled to special rules for calculating taxable income, lodging income tax returns and special rates of tax.
- Public and non-profit hospitals and public ambulance services are eligible for this concession.
- Certain non-government non-profit organisations are eligible for this concession.
- The organisation must be a deductible gift recipient to access this concession.
- The organisation must be endorsed by us as a deductible gift recipient to access this concession. The only organisations that do not need to be endorsed are those listed by name in tax law.
- The organisation must be an entity that is endorsed by us as exempt from income tax or a deductible gift recipient to access this concession.
- The organisation must be endorsed by us to access this concession. Not all registered charities are eligible for this concession.
While the ATO provides a wealth of helpful information on its website apart from the above, there is no substitute for getting proper professional advice on these matters at an early stage.
If you need help setting up a not-for-profit, read the ACNC checklist on steps you can take before you start your charity.
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