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4 Important Things to Know When Preparing Taxes for Your Charitable Organisation

28 December 2018

Renee Edwards

Organisations established for a charitable cause do lots of meaningful work in society. From promoting charitable giving to advancing education and safety, these organizations are an important part of the country's economic and social framework.

However, accounting for a charitable organization can be a real headache. This is because such companies are not established to make a profit, and thus they may enjoy special tax breaks from the Australian Tax Office (ATO). Enjoying these tax breaks comes at a price because all financial records have to be accurately prepared.

Here's what you need to know when accounting and preparing taxes for your charitable organization.  

1. All unrelated business income must be clearly reported

While most charitable groups don't do their work for a profit, it's not uncommon for such organizations to carry out side activities that generate income. Any income and profits your charitable group produces may be subject to taxation.

Any income generated outside your company's primary line of work is referred to as unrelated business income. There are specific procedures in place to report this income to the ATO. Make sure you consult an accountant to find out how such income should be legally reported.

2. Differentiate between employees and volunteers

For any charitable group, the line between employees and volunteers may seem blurry. However, there are important distinctions between the two when it comes to accounting and tax purposes.

Employees typically need to have their income recorded and tax withheld. In addition, working hours, benefits and other terms of employment should also be included in accounting and tax records for charities. Volunteers, on the other hand, only work on a voluntary basis and are much simpler to account for.

3. You must be properly registered for your contributors to enjoy tax deductions

Charities receive donations partly because the contributor will enjoy a deduction on their tax return. However, your organization must be properly registered with the ATO for your contributors to enjoy such deductions. To keep these important donations coming, consult an accountant to ensure that you have all the necessary paperwork in place for such deductions to occur.

4. Your financial statements will be under more scrutiny than normal

Due to the special tax breaks that charities enjoy, some unscrupulous entities take advantage of these exemptions under the pretence of doing charitable work. This has led to many charities coming under close scrutiny by the ATO.

Remember that your financial statements and tax documents will often be closely watched, and a small mistake can be magnified to the detriment of your organisation. Contact an accountant for more information or assistance.

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