Tax Concessions – Social Enterprises

Social enterprises need to be careful when considering the legal structure whether the benefits of tax concessions outweigh the restrictions that concession place on the organisation.

There is a range of concessions available to not for profit social enterprises, including charities.  These are discussed below. However, for profits can only access income tax exemptions in limited circumstances.

For Profit

Only certain categories of for profit social enterprises are exempt from income tax. They come from these broad groups:

  • community service organisations

  • cultural organisations

  • educational organisations

  • employment organisations

  • health organisations

  • resource development organisations

  • scientific organisations

  • sporting organisations.

Organisations can self-assess their entitlement to income tax exemption. They do not need to be endorsed by the ATO to be exempt from income tax. Most have additional tests and rules that must be met before the organisation can be exempt. We can assist you on determining whether your social enterprise satisfies the additional tests and rules.

If you work out that your social enterprise meets all the requirements for income tax exemption, all of the following applies:

  • your social enterprise will not need to pay income tax, capital gains tax or lodge tax returns, unless specifically asked to do so

  • you do not need to get confirmation of this exemption from the ATO

  • you should carry out a yearly review to check if your social enterprise is still exempt – you should also do this when there are major changes to your social enterprise’s structure or activities.

Not For Profit

A summary of tax concessions are set out below:

  • income tax exempt

Only certain categories of not for profit organisations are exempt from income tax. They come from these broad groups:

  • registered charities (discussed below)

  • community service organisations

  • cultural organisations

  • educational organisations

  • employment organisations

  • health organisations

  • resource development organisations

  • scientific organisations

  • sporting organisations.

Organisations that are not charities can self-assess their entitlement to income tax exemption. They do not need to be endorsed by the ATO to be exempt from income tax. Most have additional tests and rules that must be met before the organisation can be exempt. We can assist you on determining whether your charity satisfies the additional tests and rules.

If you work out that your organisation meets all the requirements for income tax exemption, all of the following applies:

  • your organisation will not need to pay income tax, capital gains tax or lodge tax returns, unless specifically asked to do so

  • you do not need to get confirmation of this exemption from the ATO

  • FBT exemption – Only public and not for profit hospitals and public ambulance services are eligible for this concession. If eligible the FBT exemption is capped at $17,000 per employee.

  • FBT rebate – The FBT rebate is an entitlement to a rebate equal to 48% of the gross FBT payable, subject to a $30,000 capping threshold.

Organisations that qualify for a FBT rebate are referred to as ‘rebatable employers’.

Rebatable employers are certain non-government, not for profit organisations. Organisations that qualify for the FBT rebate include:

  • certain scientific or public educational institutions

  • trade unions and employer associations

  • not for profit organisations established to encourage music, art, literature or science

  • not for profit organisations established to encourage or promote a game, sport or animal races

  • not for profit organisations established for community service purposes

  • not for profit organisations established to promote the development of aviation or tourism

  • not for profit organisations established to promote the development of Australian information and communications technology resources

  • not for profit organisations established to promote the development of the agricultural, pastoral, horticultural, viticultural, aquacultural, fishing, manufacturing or industrial resources of Australia.

Not for profit organisations can self-assess their entitlement provided they are exempt from income tax.

  • GST concessions for gift deductible entities

Only certain types of not for profit organisation can access this concession.

  • GST concessions

There are a range of goods and services tax (GST) concessions that are available to non-profit organisations, including:

  • Gifts – a gift to a not for profit organisation is not considered payment for a sale.

  • School tuck shops – a not for profit organisation may sell food through a tuck shop or canteen at a primary or secondary school and treat the sales as input taxed.

  • GST registration threshold

  • Deductible gift recipients – the registration turnover threshold is higher for not for profit organisations than for other organisations.

  • GST groups – the requirement to satisfy the 90% ownership test is waived and all the other members of the GST group or proposed GST group are not for profit organisations and members of the same not for profit association.

Only certain types of not for profit organisation can be endorsed as a deductible gift recipient.

  • Refunds of franking credits

The organisation must be an entity that is endorsed by the ATO as exempt from income tax or a deductible gift recipient to access this concession.

Charities

A summary of tax concessions are set out below:

  • income tax exempt

Registered charities, public benevolent institutions and health promotion charities must be endorsed by the ATO to be exempt from paying income tax.

Before an organisation can apply for endorsement, it must be registered with the ACNC and have an Australian business number (ABN).

If your organisation is endorsed, all of the following applies:

  • your organisation will not need to pay income tax, capital gains tax or lodge tax returns, unless specifically asked to do so

  • you should carry out a yearly review to check if your organisation is still exempt – you should also do this when there are major changes to your organisation’s structure or activities.

  • FBT exemption 

Only registered public benevolent institutions and health promotion charities are eligible for this concession. If eligible the FBT exemption is capped at $30,000 per employee.

If your organisation is eligible for FBT exemption, benefits it provides its employees are exempt from FBT where the total grossed-up value of certain benefits for each employee during the FBT year is equal to, or less than, the $30,000 capping threshold. If the total grossed-up value of fringe benefits provided to an employee is more than the $30, 000 capping threshold, your organisation will need to pay FBT on the excess.

  • FBT rebate – The FBT rebate is an entitlement to a rebate equal to 48% of the gross FBT payable, subject to a $30,000 capping threshold.

Registered charities must be endorsed by the ATO to access the FBT rebate.  A condition of this endorsement is that the charity is exempt from income tax.

The FBT rebate is only available to registered charities that are institutions.

  • GST concessions for charities and gift deductible entities

There are a range of goods and services tax (GST) concessions that are available to charities (as a not for profit organisation), including:

  • Gifts – a gift to a not for profit organisation is not considered payment for a sale.

  • School tuck shops – a not for profit organisation may sell food through a tuck shop or canteen at a primary or secondary school and treat the sales as input taxed.

  • GST registration threshold – the registration turnover threshold is higher for not for profit organisations than for other organisations.

  • GST groups – the requirement to satisfy the 90% ownership test is waived and all the other members of the GST group or proposed GST group are not for profit organisations and members of the same not for profit association.

Charities can self-assess their entitlement to GST concessions for non-profit organisations.

There are additional GST concessions that are available to registered charities and gift deductible entities provided that they are also endorsed by the ATO to access the GST charity concessions, including:

  • Raffles and bingo – tickets to raffles and bingo sold by an eligible entity are GST-free provided the holding of the raffle or bingo event does not contravene a state or territory law.

  • Fundraising events – an eligible entity may choose to treat all sales it makes in connection with certain fundraising events as input taxed.

  • Non-commercial activities – where an eligible entity makes sales and the payment it receives in return for the things it sold is less than a certain amount, the sales are GST-free.

  • Accounting on a cash basis – an eligible entity may choose to account on a cash basis regardless of its GST turnover.

  • Reimbursement of volunteer expenses – an eligible entity can claim GST credits for reimbursements made to volunteers for expenses the volunteer incurs that are directly related to their activities as a volunteer of the entity.

  • Deductible gift recipients

  • Gifts and GST credit adjustments – adjustments of GST credits are not required when an item acquired by a business is subsequently gifted to an eligible not for profit entity.

  • Donated second-hand goods – sales of donated second-hand goods by an eligible entity are GST-free.

  • Non-profit sub-entities – an eligible entity may conduct some of its activities through a not for profit sub-entity, subject to certain exceptions.

The organisation must be endorsed by the ATO 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.

  • Refunds of franking credits – If a charity is endorsed as income tax exempt, it will be entitled to a refund of franking credits on dividends it receives.

Additional Resources