A not for profit organisation is an entity that is operating for its main purpose and not for the purpose to generate or gain profits. Not for profit organisations generally fall within two broad categories:
- Non-charities, e.g. sporting and recreational clubs, community service organisations, social organisations.
Charities must register with the Australian Charities and Not for profits commission before they can be endorsed by the Australian Taxation Office for tax concessions or apply for deductible gift recipient statuses.
Non-charities have the opportunity to be able to self-asses whether or not they will be income tax exempt or income taxable and whether or not they will have access to any other tax concessions structured for not for profits. Just like charities, they will need to be endorsed by the ATO in order to obtain deductible gift recipient statuses.
If you are thinking of starting your own not for profit organisation, you need to firstly consider a few things before signing the forms. A good step to start off with is to first distinguish what is the purpose of setting up your not for profit and what sort of work and activities you are looking towards establishing.
For example, if you are considering on starting a charity, then all your purposes and activities need to be charitable.
Consider the below questions before you set up your not for profit organisation:
- What is the purpose of your not for profit?
- What is the goal of what you’re trying to achieve with your not for profit?
- Is there already an existing not for profit organisation that serves the same or similar purposes?
- What will the main activities of the not for profit be?
- What will the main programs or services be?
- Are there any existing not for profit organisations that already off the same activities, programmes and/or services?
- Who will be your target audience?
- Who will benefit the most from the activities and programs?
- Why is there a need for you to set up a new not for profit organisation?
- How long will this organisation last? Will it be short-term or long-term?
- Identify your organisation’s legal identity. Can a lawsuit be filed against your organisation?
- Identify your governance structure. Who can make what type of decision?
- Identify who will be liable for its debts and specific responsibilities throughout the not for profit.
- Identify what your reporting and compliance obligations are.
Once the above points have been determined and your organisation have been set up, you now need to consider the following tax concessions which you may be entitled to:
- Income tax exemption
- Fringe Benefit Tax exemptions or rebates
- Goods and Services Tax concessions
- Deductible Gift Recipient Endorsements
- Refund of Franking credits
If you are a charity, you must be endorsed by the Australian Taxation Office to access charity tax concessions. If your not for profit is not charity based, you can generally self-assess whether or not you may be entitled to tax concessions.
In order to access the various tax concessions mentioned above, your organisation may need to register for an Australian Business Number, AUSkey, Goods and Services Tax, Fringe Tax Benefits, pay as you go withholding, fuel tax credits and/or other taxes. In addition, you may also need to register or hold other licenses, permits or registrations.
Once you have been endorsed by the Australian Taxation Office, you may be able to apply for Deductible Gift Recipients status. This means that when someone donates to support your organisation, they will be able to claim a tax deduction if you have the Deductible Gift Recipient status.
To register your not for profit for Deductible Gift Recipients status, you will need to follow the below steps:
- Determine and understand your legal structure.
- Determine whether or not your organisation qualifies as a not for profit.
- Register your organisation with the Australian Government to obtain an Australian Business Number. You may also need to register for Goods and Services Tax, Fringe Benefit Tax, pay as you go withholding and AUSKey where required.