Charitable tax concessionsVersion: 9.4
Charity has a special meaning under law. The Commonwealth definition of charity is set out in the Charities Act 2013 . To be a charity, your organisation must:
- be not-for-profit
- have only charitable purposes that are for the public benefit
- not have any disqualifying purposes (engaging in, or promoting activities that are unlawful or contrary to public policy, or promote or oppose a political party or candidate for political office)
- not be an individual, political party or government entity.
Charities must be registered with the Australian Charities and Not-for-profits Commission (ACNC) before they can be endorsed by the Australian Taxation Office (ATO) to access charity tax concessions. In order to be registered by the ACNC, charities must also comply with the ACNC governance standards. The ATO accepts the ACNC's decision on charity registration and decides which tax concessions your charity is entitled to, depending on your charity's registered subtype.
For more information please see Australian Charities and Not-for-profits Commission (ACNC).
Public Benevolent Institution (PBI)
A Public Benevolent Institution (PBI) is a type of charity which has a predominant (main) purpose of relieving needs arising from conditions such as poverty, sickness, distress or helplessness. This is known as providing 'benevolent relief'.
For a need to attract benevolent relief, it must be significant enough, and the circumstances difficult enough, to arouse a feeling within the community that action should be taken to relieve it.
The characteristics of a PBI are:
- it is a charity
- it is an institution
- it is set up to relieve needs requiring benevolent relief
- it relieves the needs through providing goods and/or services which are directed to people who are in need
- its predominant (main) purpose is providing benevolent relief.
Examples of public benevolent institutions include:
- some organisations providing services for the homeless, such as shelters and meals
- some hospitals and hospices
- some disability support services
- some aged care services
- some providers of low rental or subsidised housing, for people in need
- some organisations that undertake active fundraising activities to generate income for a partner with a common purpose of providing benevolent relief, where the partner provides services to people in need of benevolent relief.
PBIs must be registered with the ACNC as a charity and as the PBI subtype of charity before they can be endorsed by the ATO to access tax concessions available to PBIs.
For more information please see ACNC PBI factsheet on the ACNC website.
Health Promotion Charity (HPC)
A Health Promotion Charity (HPC) is a charity whose principal activity is to promote the prevention or control of diseases in human beings. The characteristics of an HPC are that:
- it is a charity
- it is an institution
- its principal activity is promoting the prevention or the control of diseases in human beings.
Activities that may promote the prevention of a disease include:
- raising public awareness regarding a disease, its causes and the measures that can be taken to guard against contracting the disease
- undertaking medical research into the causes of a disease or how to prevent a disease.
Activities that may promote the control of a disease include:
- developing or providing aids or equipment to help people suffering from a disease
- educating carers of people with a disease
- undertaking medical research into the treatment of a disease.
Activities that are unlikely to promote the prevention or control of a disease include:
- promoting healthy lifestyles in a general sense, such as the importance of healthy eating and regular exercise
- promoting a particular type of exercise due to its general health benefits
- activities intended to increase a person's 'wellbeing'.
HPCs must be registered with the ACNC as a charity and as the HPC subtype of charity before they can be endorsed by the ATO to access tax concessions available to HPCs.
For more information please see the ACNC HPC factsheet on the ACNC website.
Former categories of charity that have been phased out
Prior to the establishment of the ACNC on 3 December 2012, there were a number of other categories of charity listed on the Australian Business Register (ABR). These have been phased out, but may still appear on the ABR for organisations that were endorsed for charity tax concessions before 3 December 2012.
A Charitable Fund was a fund established under an instrument of trust or a will for a charitable purpose. Charitable funds mainly managed trust property, and/or held trust property to make distributions to other entities or persons.
After the establishment of the ACNC, an organisation which would formerly be listed as a Charitable Fund is now listed as a Charity.
Please also see Charity above.
A Charitable Institution was an institution established and run to advance or promote a charitable purpose.
After the establishment of the ACNC, an organisation which would formerly be listed as a Charitable institution is now listed as a Charity.
Please also see Charity above.
Public Benevolent Institution (PBI) Employer
Organisations that were not PBIs as a whole, but which operated a PBI sub-entity used to be entitled to PBI Fringe Benefit Tax (FBT) concessions for the employees of their PBI sub-entities. The PBI sub-entity was known as a 'PBI Employer.'
The characteristics of a PBI employer that an organisation operated were:
- it was a Public Benevolent Institution (PBI)
- it was an employer
- it was not an entity in its own right, but formed part of a larger organisation.
The FBT exemption for a PBI employer that an organisation operated did not apply in respect of the organisation's employees generally. It only applied in respect of the employees of the PBI employer itself, subject to a capping threshold.
From 3 December 2012, an organisation could no longer apply for endorsement to access FBT exemption for a PBI employer it operated. All PBIs now have to be entities in their own right, as they need to be registered with the ACNC before the ATO can grant any PBI tax concessions.
Income Tax Exempt Fund
An Income Tax Exempt Fund (ITEF) was a non-charitable ancillary fund endorsed by the ATO to access income tax exemptions before 1 January 2014.
From 1 January 2014, new arrangements have applied. Funds endorsed as ITEFs at 31 December 2013 were transitioned into these arrangements by being:
- registered with the Australian Charities and Not-for-profits Commission (ACNC) as charities, and
- endorsed by the ATO to access income tax exemption as a registered charity.
ITEFs can no longer be endorsed for income tax concessions.
For more information, see:
- Factsheet: Private and public ancillary funds and the ACNC on the ACNC website
Income Tax Exemption
Income tax exemption is an exemption from paying income tax, removing the need to lodge income tax returns. Entities that are endorsed as income tax exempt are entitled to a refund of franking credits on franked dividends they receive.
There are a range of goods and services tax (GST) concessions for transactions involving endorsed charities:
- Gifts and GST credit adjustments – adjustments for GST credits are not required where an item acquired by a business is subsequently gifted to the charity.
- Accounting on a cash basis – the charity may choose to account on a cash basis regardless of its annual turnover.
- Non-commercial activities – where the charity makes sales and the payment it receives in return is less than a certain amount, the sales are GST-free.
- Donated second-hand goods – sales of donated second hand goods by the charity are GST-free.
- Raffles and bingo – tickets to raffles and bingo sold by the charity are GST-free provided the holding of the raffle or bingo event does not contravene a state or territory law.
- Fundraising events – the charity may choose to treat all supplies it makes in connection with certain fundraising events as input taxed. The charity is not required to remit GST on supplies made in connection with the event. However, the charity is not entitled to claim GST credits for related purchases.
- Non-profit sub-entities – the charity has the option of treating any of its separately identifiable branches as separate entities for GST purposes. Provided that the annual turnover of the non-profit sub-entity is less than $150,000, the sub-entity is not required to register for GST. An unregistered non-profit sub-entity does not remit GST on sales and does not claim GST credits for purchases.
- Reimbursement of volunteer expenses – the charity 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 charity.
Fringe Benefits Tax (FBT) rebate is an entitlement to a rebate equal to a percentage of the gross FBT payable, subject to a capping threshold.
Organisations that qualify for a FBT rebate are referred to as 'rebatable employers'.
Rebatable employers are entitled to have their liability reduced by a rebate equal to:
- 48% of the gross FBT payable, subject to a $30,000 capping threshold for the year ending 31 March 2015 and prior years
- 49% of the gross FBT payable, subject to a $31,177 capping threshold for the years ending 31 March 2016 and 31 March 2017
- 47% of the gross FBT payable, subject to a $30,000 capping threshold for the year ending 31 March 2018
If the total grossed-up value of the fringe benefits provided to an individual employee is more than the capping threshold, a rebate cannot be claimed for the FBT liability on the excess amount.
Fringe Benefits Tax (FBT) exemption is an exemption from paying FBT subject to a capping threshold. If the total grossed-up value of the fringe benefits provided to an individual employee is more than the capping threshold, the employer will be liable for the FBT on the excess amount.
For public benevolent institution (other than public hospitals) and health promotion charities, benefits provided to employees are FBT exempt where the total grossed-up value of certain fringe benefits for each employee is $30,000 or less for the FBT year ending 31 March 2015 and prior years. The capping threshold is $31,177 for the FBT years ending 31 March 2016 and 31 March 2017 and is $30,000 for the FBT year ending 31 March 2018.
For public hospitals, non-profit hospitals and public ambulance services, the capping threshold for each employee is $17,000 or less for the FBT year ending 31 March 2015 and prior years. The capping threshold is $17,667 for the FBT years ending 31 March 2016 and 31 March 2017 and is $17,000 for the FBT year ending 31 March 2018.