Employers exempt from payroll tax

A not-for-profit is generally an organisation that does not operate for the profit, personal gain, or other benefit of particular people, such as:

• its members
• the people who run the organisation, and/or
• their friends or relatives.

The definition of not-for-profit applies while the organisation is operating and if it closes.

Making a profit

A not-for-profit can make a profit, but any profit it does make must be allocated towards its purposes.

Not-for-profits can also retain any profits if there is a genuine reason to do so, and that reason is clearly linked to its purpose.

For example, an organisation may wish to retain profits to save for:

• a new project
• new infrastructure or building, or
• to help it accumulate a reserve so that it remains sustainable.

If a not-for-profit holds onto significant profits indefinitely – and without using them towards its charitable purpose – it may suggest the organisation is not working solely towards its stated charitable purpose. This, in turn, may mean it is not operating as a not-for-profit.

Dissolution

If the not-for-profit is dissolved, all assets that remain after the dissolution and the satisfaction of all debts and liabilities should be transferred to another organisation.

The other organisation should have similar purposes, which is charitable at law, and have rules prohibiting the distribution of its assets and income to its members.

To be exempt from payroll tax, a public benevolent institution must be:

• a not-for-profit, and
• set up for the:
  • relief of sickness, suffering, distress, misfortune, destitution, or helplessness, or
  • benefit of members of a community or a particular locality suffering from a particular disadvantage.

To be recognised as a charity, an organisation must be:

• not-for-profit
• for public benefit, and
• have objects solely or dominantly for the:
  • relief of poverty or sickness or the needs of the aged
  • advancement of education
  • advancement of social and community welfare
  • advancement of health
  • advancement of culture
  • advancement of religion
  • advancement of the natural environment, and/or
  • other purposes beneficial to the community.

For an exemption to apply, the wages must be paid to workers engaged exclusively for work of a kind ordinarily performed in connection with the charitable or benevolent purpose of the organisation.

A partial exemption can also be applied.

Please note

Being registered with the Australian Charities and Not-for-profits Commission does not automatically result in an exemption from payroll tax.

Need more detailed information?

Revenue Ruling PTA 009 – Payroll tax charitable exemption: meaning of exclusively explains the interpretation adopted by the Chief Commissioner of the term “exclusively” as referred to in section 48(2)(b) of the PTA in respect of charitable organisations.

Most wages payable by council, county council or local government business entities are exempt from payroll tax. However there are limitations.

The PTA specifies that an exemption does not apply to wages paid or payable for or in connection with:

1. Any of these activities below, which are referred to in subsection (2) of Section 60 of the PTA:
   1. the supply of electricity or gas
   2. water supply
   3. sewerage
   4. the conduct of:
      1. abattoirs
      2. public markets
      3. parking stations
      4. cemeteries or crematoria
      5. hostels
      6. an activity prescribed by the regulations
   5. an activity specified in Schedule 2, which are listed:
      1. the supply of liquefied petroleum gas or hydraulic power and the supply and installation of associated fittings and appliances and of pipes and apparatus
      2. the operation of a transport service
      3. the supply of building materials
      4. the operation of a coal mine and the supply and distribution of coal.
2. the construction of any buildings or works, or the installation of plant, machinery or equipment for use in any of the activities referred to above, as listed in subsection (2).

See section 60 and Schedule 2 Section 11 of the PTA