Not For Profits (NFP) across the country may have different tax implications that apply to their particular organisation, especially if they are exempt from income tax. However, the rules around employees and volunteers remain unaffected for these organisations and need to be taken into account during tax time.
What Is A Not For Profit?
A not-for-profit is generally an organisation that does not operate for the profit, personal gain or other benefit of particular people (for example, its members, the people who run the organisation, or their friends or relatives).
It can provide direct benefits (such as distributing money or gifts) or indirect benefits (such as a member receiving help that is consistent with the organisation’s purpose). In not-for-profit (NFP) organisations, staff members and those determined to be ‘responsible persons’ (such as a board or committee member, or a trustee) can also be paid a reasonable amount for their work.
Tax Treatment Of Employees:
PAYG
Pay as-you-go (PAYG) withholding obligations for not-for-profit organisations are the same as for businesses. Organisations that are exempt from income tax are not exempt from PAYG withholding obligations and must withhold amounts from their employees’ or independent contractors’ pay to send to the ATO.
Under the PAYG system, independent contractors can provide for their own income tax liability by entering into voluntary agreements authorising your not-for-profit organisation to withhold amounts from their payments.
If your organisation is in a labour hire arrangement, it must withhold from payments to the labour hire firm if the firm has not quoted its ABN. If your organisation provides workers to its clients under a labour hire arrangement, it must withhold from payments to these workers.
FBT
If a not-for-profit (NFP) organisation provides a fringe benefit to its employees or associates of its employees (such as family members), it may have to pay fringe benefits tax (FBT). FBT is separate from income tax. It is calculated on the taxable value of the fringe benefits provided.
Pending eligibility, the organisation may be able to apply for FBT concessions for not-for-profit organisations.
As a general rule, your NFP organisation is not liable for FBT on benefits provided to independent contractors.
Employment Termination Payments
The employment termination payments (ETPs) obligations for your not-for-profit organisation are the same as for businesses.
ETPs are specific payments made to your not-for-profit organisation’s employee when they stop working for you. ETPs are subject to concessional tax treatment depending on the employee’s age and length of employment.
Tax Treatment Of Volunteers
Although there is no legal definition of ‘volunteer’ for tax purposes, a volunteer does not work under a contractual obligation for remuneration and would not be an employee or independent contractor. So, if an NFP’s workers are not employees or independent contractors, they will be volunteers.
As a general rule:
- Volunteers do not have to pay tax on payments or benefits they receive in their capacity as volunteers.
- Not-for-profit organisations are not liable for pay as you go (PAYG) withholding and fringe benefits tax (FBT) on payments they make, or benefits they provide, to volunteers.
If you’re ever uncertain about income tax matters, whether you’re an NFP, general business or even an individual, speak with your registered tax agent. We’re here to help.
