Taxation Arrangements

The taxation arrangements that apply to various not-for-profit organisations can vary enormously, the tax law does not provide a blanket income tax exemption for not-for-profit organisations or membership based entities.

One of the key determinants of income tax exemption status is the extent to which an organisation provides a wide public benefit. Income tax exemptions are provided to not-for-profit organisations whose purposes are broadly beneficial to the wider Australian community. such as charitable, religious, scientific and public educational institutions.

Where the purpose of a not-for-profit organisation is to provide services or support to its members in the first instance, then a tax exemption is not considered appropriate. This is because the organisation's focus is first and foremost on the interest of its members. Vehicle clubs generally fit into this area It should be noted that not-for-profit organisations which are based on the interests of members benefit significantly from not being assessed on the receipts from their members. That is the mutual receipts of a not-for-profit club. society or association are not counted as assessable income. Mutual receipts are those derived from dealings with the members of the organisation, and include amounts members pay for services offered by the club such as bar and restaurant facilities.

The fact that vehicle club's are ‘Not for Profit’ is irrelevant as far as paying tax is concerned. However, a not for profit incorporated club is taxed under the ‘principle of mutuality’. Under this arrangement assessable income for tax only consists of funds raised from outside the organisation. In other words, receipts from mutual dealings with members are not income for tax purposes. This includes all membership subscriptions, raffle proceeds where tickets are sold to members and the sale of club memorabile to members etc.

Expenditure of funds, to generate a tax deduction is also covered by the ‘principle of mutuality’ ie the a tax deduction can only claimed if the expenditure is required to generate an income from non members (ie a taxable income) or as a donation to a recognised charity.

In the case of Vehicle clubs that don't run events where the charge members of the public, the main external income is bank interest. The total of external income should be totalled annually. Clubs are given a tax free threshold of $416.

If a club earns more that $416 from bank interest or from non members then the club is obliged to submit a tax return.

External income (bank interest) could be managed so as to ensure that it remains below the threshold. 

Clubs which conduct swap meetings or car displays were members of the public are charged an entry fee are seen to be generating non mutual income which is assessable for income tax any expenditure in setting up, conducting, and advertising the swap or display etc is considered non mutual Expenditure  and would qualify as a tax deduction.

Clubs are urged to track and record all ‘mutual’ and "non mutual" income & expenditure