h&r block tax & business services non for profit entities

H&R BLOCKtax & business services

Non for Profit Entities

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tax & business services

Discussion

What is the suitable structure for my LSS? Is my LSS a NFP? What is the result of being NFP? How can I apply for income tax exemption for my LSS? Can I register my organisation as a “Registered Charity? How can I register my organisation as “Registered Charity”? What to do next? ACNC approved the application! What is it mean? What are the categories of organisations that exempt from income tax? Can I self-assess my entitlement to income tax exemption? I don’t know whether my organisation is concession charities (TCCs) or income tax exempt funds

(ITEFs), what can I do? What happen if the ACNC and the ATO is not acknowledging my LSS as TCC or ITEF? How can I reduce the tax liability of my LSS? When would the LSS need to lodge tax return and pay tax? And how much tax I have to pay? What is the main concern of the ATO? Questions?

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What is the suitable structure for my LSS?

Unincorporated associations

Incorporated associations

Company limited by guarantee

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Unincorporated Associations

• An unincorporated association is not recognised as a separate legal entity to the members associated with it.

• It is a group of people who agree to act together as an organisation and form an association.

• The group can remain informal and its members make their own rules on how the group is managed.

• Members will be personally liable for income tax.• The rules may also be referred to as a constitution.

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Incorporated Associations

• It is a legal entity separate from its individual members. • Associations are incorporated under the state or territory

legislation in which they operate. • It is restricted to operating within that state or territory.• Can continue regardless of changes to membership. • Limiting personal liability to outstanding membership and

subscription fees (Protection to members).• Legislation varies from state to state.

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Company limited by guarantee

• It is a public company incorporated under the Corporations Act 2001.

• It has a separate legal entity separate from its members. • can operate anywhere in Australia.• can continue regardless of changes to membership. • The liability of company members is limited to the amount

the members undertake to contribute to the property of the company if it ceases operation.

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Is my LSS a NFP?

ONLY IF• Any profit made by the organisation goes back into the

operation of the organisation to carry out its purposes and is not distributed to any of its members.

• The constitution or governing documents must prevent it from distributing profits or assets for the benefit of its members.

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What is the result of being NFP?

NFPWill have the BENEFIT of :

• Special RULES for calculating taxable income, • lodging income tax returns; and • special RATES of income tax.

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What is the result of being Non-NFP?

Non-NFP• It must lodge an income tax return each year, regardless

of its taxable income. • Same rates of tax will be applied as other taxable

companies.

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BOTTOM LINE

Taxable non-profit organisations are treated as companies for income tax purposes, whether or not they are incorporated.

Capital gains tax (CGT) applies.

Not all NFP are exempt from paying income tax

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How can I apply for income tax exemption for my LSS?

Your LSS needs to be:• Tax Concession registered Charity; or• Self-assessed income tax exempt organisation.

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Can I register my organisation as “Registered Charity”?

YESIf your LSS provides services to the public

(not only to its members).

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How can I register my organisation as “Registered Charity”?

• The organisation must be REGISTERED by ACNC to access tax concession.

• THEN, it must be ENDORSED by the ATO.

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What to do next?

1. Apply for ABN (if you don’t have one)2. Register the organisation with the ACNC

(Australian Charities and non for profits commissions).

3. The ACNC will inform the ATO about the status of your organisation.

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ACNC approved the application!What is it mean?

1. The organisation does not need to lodge income tax returns, unless specifically asked to do so.

2. The organisation will need to regularly review whether it is entitled to endorsement.

3. The organisation must inform ATO if it ceases to be entitled.

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What are the of categories of organisation that exempt from income tax?

• The ACNC and the ATO will exempt the LSS from tax if was performed as one of the following:

registered charities community service organisations cultural organisations educational organisations employment organisations health organisations income tax exempt funds resource development organisations scientific organisations sporting organisations.

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Can I self-assess my entitlement to income tax exemption?

YES• If you have binding declaration from the ATO that

your LSS can be self-assessed as income tax exempt.

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I don’t know whether my organisation is concession charities (TCCs) or income tax exempt funds (ITEFs), what can I do?

You can self-assess your entitlement to income tax exemption if authorised by the ATO.

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What happen if the ACNC and the ATO are not acknowledging my LSS as TCC or ITEF?

• The LSS will be considered as Taxable NFP.• You need to pay income tax.• Any sponsorship income the LSS receive will

be considered as income.

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How can I reduce the tax liability of my LSS?

DeductionYou are able to claim any expenditure incurred and related to running your LSS.

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When would the LSS need to lodge tax return and pay tax?

• No tax on Taxable income of $416.00 or less.

• 55% if taxable income between $417 and $915

• 30% if taxable income above $915 (taxed on all of taxable income).

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When would the LSS need to lodge tax return and pay tax?

Taxable income

$0-$416

$417-$915

$916 and above

Nil

55%

30%

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What was the main concern of the ATO in the past?

Henry report states that:The system of concessions is complex and

does not appropriately reflect current community values about the merit and social

worth of activities.

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What was the main concern of the ATO in the past?

ATO has considered that, if the purpose of NFP is to carry on commercial enterprise to generate surplus, the purpose is not charitable and concessions should not be applicable.

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What is the main concern of the ATO in the future?

Word investment limited case TR 2011/4

The High court states that:NFPs can raise money through commercial activities and not to be subject to 30% tax rate as long as the acts of charity remain the motive for making the profit.

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Summary

NFPs were able to carry out commercial activities to make profits where:1. The commercial activity was being carried out in a way that

was charitable.2. The commercial activity were merely incidental to the

carrying of the charitable purpose; or3. It did so by charging fees for charitable services.

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Questions?

h&r block tax & business services non for profit entities

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