Not-for-Profit (NFP) organisations are not like normal businesses that aim to make a profit. Instead, their purpose is to provide some benevolent or philanthropic benefit. Common examples of charitable organisations are churches, clubs, societies and trusts. A Not-for-Profit can in fact make profits, however these profits are to be used only for the continuance of their charitable activities and are prohibited from being distributed to any member for personal pecuniary gain.

NFPs come in many shapes and sizes (charities, society, association, group, incorporated, unincorporated). They also have different tax and financial reporting rules compared with commercial, for-profit businesses. Annika Dickey, NFP Advisor, says there are a number of specific regulations around tax exemptions and reporting for NFP organisations and because each NFP is unique, it can be difficult for those managing the finances to decipher what tax they have to pay. Fringe Benefit Tax (FBT) in particular is challenging. That’s when talking to an expert can save time, money and stress.

Simply put, NFP organisations can employ and pay people to perform specific tasks or jobs. As part of their job the employee may receive, from the NFP, benefits in the course of doing work, known as fringe benefits.

While there are 4 main types of fringe benefit, employees of NFP organisations are most likely to only fall into a couple of categories: (1) free, subsidised or discounted goods and services; and (2) private use of a motor vehicle. Generally, NFPs are afforded certain exemptions from FBT.

Here’s some examples:

How much is FBT?

While there are set tax rates, Inland Revenue gives NFPs the option to calculate the amount of FBT due, based on a number of factors such as whether the benefit is attributed to a specific employee and how frequently they wish to pay (quarterly or annually). To ensure the NFP is correctly applying these options, we recommend talking to an advisor.

With a recent increase in Inland Revenue reviews in this sector, an advisor can also identify if you have been accounting for FBT incorrectly or not at all and then clarify whether a liability does arise and if it is material. If required, they can advise you whether to lodge a voluntary disclosure with Inland Revenue.

Key Contacts

Fringe Benefit Tax Guide for Not-for-Profits

Goods and Services Tax for Not-for-Profits