Income Tax Exempt Non-profits and Endorsement of CharitiesWritten by the ATO
The New Tax System requires the endorsement of charities as Income Tax Exempt Charities or Deductible Gift Recipients. How are the definitions of charities and income tax exempt non-profits affected by the introduction of The New Tax System?
The Endorsement of Gift Deductible Recipients and Income Tax Exempt Charities (ROGATE) is income tax legislation that requires Income Tax Exempt Charities (ITEC) and Deductible Gift Recipients (DGR) to gain endorsement from the ATO. In order to gain endorsement as either an ITEC and/or DGR entities need to have an Australian Business Number (ABN).
The ATO has produced three publications that provide substantial guidance to the non-profit sector on the definitions of non-profits and charities.
The term "charitable" has the same meaning for GST as it has for income tax.
Purposes are considered to be charitable if they benefit the community, or some section of it, through:
Poverty, sickness and the needs of the aged
Relieving poverty, sickness and needs arising from old age are charitable. Examples of organisations likely to be charitable under this test are hospitals and nursing homes, relief agencies, disaster response organisations, youth and women's refuges, drug rehabilitation, refugee welfare centres, soup kitchens, organisations that supply low cost furniture, clothing, and housing to the poor.
The advancement and promotion of education are charitable. Charitable organisations for the advancement of education include schools, colleges, universities, research and scientific institutes, scholarship trusts, school building funds and parents and friends associations.
The advancement of religion is charitable. Charitable organisations for the advancement of religion include churches, synagogues and other religious congregations, seminars, religious orders, organisations for building or repairing religious buildings, maintaining clergy spreading religious doctrine and practice.
Other Purposes Beneficial to the Community
Charitable activities for other purposes that may be beneficial to the community include:
Organisations that are not charitable include:
In respect to GST s38-220 and s38-250 of the GSTA provides the principles for GST-free supplies for religious services and the non-commercial activities of charitable institutions, trustee of charitable funds and gift deductible entities.
Specific Questions and Answers
The term 'charitable' has the same meaning for GST as it has for income tax. The definition of charitable is provided above under the major issue policy intent. It is likely that an organisation providing community care would satisfy the charitable purpose of 'relieving poverty, sickness and the needs arising from old age'. Where an organisation is unsure of its status as a charity it should obtain a ruling from the ATO to clarify the issue.
Privately funded community care services are GST-free if they are provided to one or more aged or disabled people and they are of a type specified by item 2.1 of Part 2 of Schedule 1 to the Quality of Care Principles made under the Aged Care Act 1997. Such care services are daily living activities assistance and include assistance with bathing, eating, personal hygiene and respite care.
To be a DGR:
Environmental organisations are approved by the Department of the Environment. They are entered on the Register of Environmental Organisations.
Donations to the gift fund of approved organisations are deductible.
To be a charitable institution, the organisation must:
A charity is an entity established for altruistic purposes that the law regards as charitable. Charitable purposes are the relief of poverty, the relief of the needs of the aged, the relief of sickness or distress, the advancement of religion, the advancement of education and other purposes beneficial to the community. Entities that are predominantly involved in sporting, recreational or social purposes, political lobbying or promotional purposes, or that are carrying on the functions of government are not charities.
It is possible that an organisation is a DGR, but does not fit the definition of a charitable institution, because, for example, it is predominantly involved in lobbying.
If an organisation is a charitable institution, it is entitled to endorsement if it meets at least one of these tests:
For environmental organisations this means:
They are DGRs (either as an entity, or on behalf of a fund they operate)
They can be considered as ITECs, but must meet the requirements of section 50-5.
Section 30-170 of the ITAA 1997:
(1) The Commissioner may revoke the endorsement of an entity if:
(a) the entity is not entitled to be endorsed; or
(b) the Commissioner has requested the entity under section 30-155 to provide information or a document that is relevant to its entitlement to endorsement and the entity has not provided the requested information or document within the time specified in the request; or
(c) the entity has contravened Subdivision 30-CA (which requires the entity to ensure that certain things are stated in any receipts it issues for certain gifts).
Note: Section 30-125 sets out the conditions for an entity to be entitled to be endorsed.
(2) The revocation has effect from a date specified by the Commissioner (which may be a date before the Commissioner decided to revoke the endorsement).
(3) However, if the Commissioner revokes the endorsement because the entity is not entitled to it, the Commissioner must not specify a date before the date on which the entity first ceased to be entitled.
(4) The Commissioner must give the entity written notice if the Commissioner revokes its endorsement.
(5) The Commissioner may give the notice by way of electronic transmission. This does not limit the ways in which the Commissioner may give the notice.
Section 30-175: If the entity is dissatisfied with the revocation of its endorsement, the entity may object against the revocation in the manner set out in Part IVC of the Taxation Administration Act 1953.
Note: That Part provides for review of the revocation objected against.