What specific steps a business owner needs to follow in order to get tax-exempt status for a nonprofit organisation?
Contrary to popular belief, nonprofit corporations do not enjoy an automatic tax exemption. Some of them may still need to pay tax. The assessment process will differ based on the nature of the organisation. Charities will require an endorsement from the Australian Tax Office or ATO. On the other hand, non-charities are responsible for assessing their own income tax status.
Charities and Exemptions
This category includes religious institutions, public benevolent associations, health promotion organisations, and the like. In order to qualify for an ATO endorsement for exemption, these groups must become a registered member of the ACNC or Australian Charities and Not-for-profits Commission. Self-assessment is not permitted among charitable organizations.
The Process of Self-assessment
1. Verify whether your organisation falls under any of the self-assessment categories.
Groups that are not operating as charitable institutions can take it upon themselves to check whether they are exempt from income tax or not. They do not have to be registered with any group. They do not have to get an endorsement from the ATO. These groups will usually identify themselves as educational, cultural, employment, community service, health, scientific, sporting, or resource development organisations. Note that groups that fall under these categories but operate as charities, such as charitable educational institutions, should not assess their own tax status.
2. Verify suitability from the listed requirements.
Every category will have its own set of requirements for tax exemption. For example, they must operate on a not-for-profit basis. They must also fulfil all the basic requirements stated in the governing rules. The income and assets of the group should only be applied for the purpose stated when it was established. Lastly, they must pass one of three tests: physical presence in Australia, prescribed by law, and deductible gift recipient tests.
3. Fill up a worksheet.
There must be a record of this assessment using the appropriate worksheet. For example, sporting organisations should utilise the form that was made specifically for them. Other groups should do the same. The worksheet will prove that there was an effort to diligently complete this process.
4. Brace for the possible outcomes and act accordingly.
There are three scenarios that can arise. If the self-assessment leads you to conclude that organisation is tax exempt, then there is no need to pay unless the ATO specifically asks that you do. Confirmation is not necessary. Annual reviews must be carried out to confirm tax status. As for those that are not exempt, tax payments must be made every year. Special rules might apply. Lastly, those who are left unsure of their status can call the ATO for clarifications.
Those who need assistance with tax-exempt status for a nonprofit organisation can contact qualified professionals in Perth WA such as Perth Mobile Tax.