Registering of Denominations
When Must Registration Forms be Lodged?
Can a Church Cancel its Registration?
Is your church required to register for GST?
Monthly, Quarterly or Annual GST Returns
Cash or Accruals
Income Tax Exemption
Australian Business Number
Checklist for Registration
Registration – General Rules
Must a Church Register for GST?
Determining whether to register or not is the first decision a church must make.
A church must register for GST if its GST turnover exceeds the registration threshold. If the church’s GST turnover is less than the registration threshold, it may choose to register.
Consequences of Registering
A registered church:
- Must charge GST on taxable transactions
- Can claim input tax credits from the Taxation Office for GST paid on purchases
- Must keep tax invoices
- Must lodge GST returns
Registration Turnover Thresholds
The registration turnover threshold for a church is $150,000. This threshold applies to the church irrespective of whether the church is a separate, autonomous entity or is being treated as a non-profit sub-entity of the denomination.
What is GST Turnover?
GST Turnover covers income from all sources with a few exceptions such as:
- Income from input taxed transactions (eg. interest income)
- Insurance payouts
- Supplies not connected with Australia
- Sales of capital assets, such as buildings, provided the item has not been bought or developed for resale at a profit (only excluded when calculating projected GST turnover)
- Supplies made solely as a consequence of closing down all or a substantial part of the church (only excluded when calculating projected GST turnover)
Supplies for no consideration are generally not included in calculation of GST turnover. However, if the supplies was made to an unregistered associate for no or inadequate consideration, the supply may be deemed to be made at market value and that market value is included as part of the entity’s GST turnover.
If the church is a member of a GST group, the GST turnover is calculated on all the supplies made by members of the GST group but exclude supplies made between members.
Input taxed transactions are primarily income from financial services, residential rents and the sale of residential property.
- Rent from the hire of the hall or the church
- Funds received from fetes, social events, youth activities, etc
- Sales of books, tapes, etc and
- Income from counselling services
The turnover for most churches is less than the registration threshold. Few churches have income from sources other than donations, which exceeds the $150,000 threshold. Therefore, few churches have to register. However most churches choose to register to enable them to claim back the GST paid on purchases.
When is GST Turnover Measured?
In determining whether a church must register, it must consider its current and projected GST turnover. This must be monitored each month particularly if the church’s GST turnover is approaching the registration threshold and it is still not registered.
Current GST turnover is measured over a 12-month period ending at the end of the current month.
Projected GST turnover is measured over a 12-month period, beginning at the start of the current month.
A church must register for GST if either of the following applies:
- Current GST turnover exceeds the threshold unless the Taxation Office is satisfied that projected GST turnover is less than the threshold, or
- Projected GST turnover exceeds the threshold
In determining whether it must register, a church needs to consider both current and projected GST turnover. Even if current GST turnover is less than the threshold, the church must register if its projected GST turnover is greater than the threshold.
When determining GST turnover, consideration received for supplies that would be taxable supplies to a GST registered entity, needs to be grossed up by 11/10.
As at November 2018, the church’s current GST turnover for the period 1 December 2017 to 30 November 2018, excluding offerings, is $140,000. However, it plans to open a bookshop. Its projected GST turnover measured for the period 1 November 2018 to 31 October 2019 is greater than $150,000. Therefore the church must now register if it has not already done so. It has only 21 days to complete and lodge its registration forms.
Should a Church Register?
A church need not register if its turnover is less than $150,000. Most churches do not exceed the compulsory registration threshold, but they can still choose to register.
An unregistered entity does not need to charge GST on any of its supplies of goods and services. Determining transactions on which a registered church must charge GST is a difficult area. Remaining unregistered removes the need for a church to make these difficult decisions.
Some small churches find that a basic manual bookkeeping system is still sufficient for their needs. However, a GST registered church is likely to need to keep more extensive records and produce some form of financial accounts at least on a quarterly basis. A GST registered church must lodge GST returns with the Taxation Office either monthly or quarterly and must ensure that it maintains all tax invoices. A small church may decide not to register for GST due to the additional administrative obligations.
However, an unregistered church will absorb GST paid on all purchases as it cannot claim input tax credits from the Taxation Office for the GST it has paid on its purchases. Therefore, an unregistered church will pay more for goods and services than a registered church.
Should a Church Register – Summary
Advantages of not Registering:
- No need to charge GST
- No need to determine which transactions are subject to GST
- No need to lodge GST returns
- No need to maintain tax invoices, and
- No additional administrative burden
Disadvantages of not registering:
- Cannot claim back GST paid on goods and services
- Increased cost of goods and services, and
- Need to continually monitor turnover to ensure that the church does not exceed the registration threshold at a later date
Most churches choose to register. The additional cost of goods and services for unregistered entities may be significant. The cost savings of registering will generally outweigh the additional administrative burden.
Registering of Denominations
Some churches are not legally separate autonomous entities. Rather they act under the auspices of the denomination and adopt their rules and regulations.
Where this occurs, the churches are considered branches of the denomination for GST purposes. With this structure, the denomination has two choices:
- It can register the denomination only and all churches fall under that denomination’s registration, or
- Each church can be treated as a separate non-profit sub-entity . Each church can then determine whether it will register for GST
If the denominational registration covers all churches, the denominational head office is responsible for remitting all GST collected by the churches and claiming input tax credits for all GST paid by the churches. To do this, the denomination must obtain detailed accounting records from each church. It must ensure that each church has kept all the required tax invoices. Furthermore, churches remit the GST collected and obtain their refund entitlements from the denominational office.
This would be a significant administrative burden for the denomination. We do not know of any denomination that has adopted this approach, but you should contact your denominational office if you are uncertain of its approach.
Before a church operating under a denomination can be registered as a separate non-profit sub-entity for ABN and GST purposes, the denomination must first be endorsed for GST concessions.
When Must Registration Forms be Lodged?
Churches do not need to register if their turnover is below the relevant threshold. However, if the church’s current GST turnover or projected GST turnover later exceeds the threshold, it has only 21 days from the day the turnover threshold is met to register.
Even if a church decides not to register for GST, it must still lodge an application with the Australian Business Register to obtain an Australian Business Number (ABN). Once the ABN is received, the church should register as a charity with the ACNC. Once registered, the ACNC will forward the application to the Taxation Office. The Taxation Office will endorse the church as income tax exempt and entitled the FBT rebate and GST charity concessions.
Can a Church Cancel its Registration?
A church must cancel its registration within 21 days after the church ceases to operate.
A church can also apply to cancel its registration if its GST turnover is below the registration threshold. The Taxation Office can accept the request for cancellation within twelve months from the date of registration.
A church can apply for cancellation of its registration to be backdated only if from the date of cancellation:
- The organisation has not held itself out to other businesses as being registered for GST
- It has not issued tax invoices or adjustment notes
- It has not claimed input tax credits or, if it has claimed credits, a net GST amount has been paid to the Taxation Office on each BAS (ie you did not receive a refund), and
- The organisation makes a signed statement to the Taxation Office that it satisfies all of the above.
Most churches will not meet the above requirements. Therefore, for most churches they will only be able to cancel their registration on a prospective basis. GST registration can be cancelled through the Taxation Office’s business portal, by ringing the Taxation Office or by completing a Taxation Office form.
Churches endorsed for GST concessions can choose to treat separate branches or units of their organisation as non-profit sub-entities. The sub-entity can choose not to register for GST provided its turnover is less than $150,000 (even if the church’s GST turnover is $150,000 or more). Consequently, it does not need to charge GST on the sale of its goods or services, but cannot claim input tax credits for GST paid.
Sub-entities can also choose to register for GST. In order to be registered for GST, a sub-entity will need to have an ABN. The sub-entity can use the ABN of the parent entity or apply for its own ABN. However, the ABN of a sub-entity can only be used for GST registration purpose and no other purposes such as applying for endorsement as a DGR for the sub-entity.
Areas or activities that churches have commonly treated as non-profit sub-entities include:
- Chocolate drives
- Youth groups
- Car wash fundraising
- Sale of cookbooks
- Family camps, and
- Basketball and other sporting teams
Generally non-profit sub-entities prove most useful where:
- The activity involves many different transactions, some of which are GST-free and some are not, eg fetes
- Timely collection of funds does not occur and therefore calculation and remittance of the GST collected is difficult, eg chocolate drives
- Funds are allocated to a particular group of the organisation and timely record keeping is unlikely to occur, eg church youth group, or
- The activity involves the use of very few materials or most goods and materials used are donated and therefore the input tax credit to be claimed is small, eg car wash fundraising.
However, non-profit sub-entities can also be useful where you want to remit GST on a different basis for some transactions. For example, your organisation is registered on a cash quarterly basis for GST. You decide to build a new building for your organisation’s operations. You will incur substantial costs with the property development and would prefer to be registered on an accruals monthly basis. By establishing a sub-entity that is registered for GST, you can have the main organisation using a different GST basis to the property development. Note that the issue of winding up and cancelling GST registration of the sub-entity at the end of the project should be addressed.
Criteria for Non-profit Sub-entities
Before electing for the activity to be a non-profit sub-entity, it is important that the church ensure that two important criteria are met. First, the sub-entity must be separately identifiable by the nature of its activities or by its location and it must keep an independent accounting system. It does not need to maintain a separate bank account or set of books, but the records of the sub-entity must be clearly and easily distinguished from the records of the church. Therefore, it is important that someone is appointed to maintain those records and that the treasurer or the appropriate person regularly ensures that the records are in order.
The church must also recognise in its own records the separate status of the non-profit sub-entity. The Taxation Office has found during GST audits when asking to see the non-profit sub-entity election that no such written election have been made.
There is no requirement to notify the Taxation Office of the decision to treat an area or activity as a non-profit sub-entity. However, it is vital that if a church decides to treat an area or activity as a non-profit sub-entity that the decision is recorded. This can generally occur in the minutes of the appropriate finance group, whether that be the deacons, elders, finance committee, etc. Alternatively, the finance group could maintain a separate record of all non-profit sub-entity elections.
An election to treat a particular area or activity as a non-profit sub-entity will continue until the time an election to revoke that decision is made. The election to revoke a sub-entity election should be clearly recorded in the church’s records. A decision to treat an area or activity as a non-profit sub-entity cannot be revoked for at least twelve months. Further, having revoked an election, the church cannot re-elect for the activity to be a sub-entity for a further twelve months.
When an activity ceases to be a non-profit sub-entity either by election or that the activity no longer meets the criteria to be a non-profit sub-entity, it must also consider cancelling its GST registration (if the activity is separately registered for GST).
Supplies between the Church and Sub-entities
For GST purposes, the church and the non-profit sub-entity are treated as separate entities but they are also considered to be associated entities. The GST Act contains specific provisions regarding supplies between associates.
If the church provides items or supplies to the non-profit sub-entity for no consideration or inadequate consideration, the church is deemed to have made a taxable supply. This supply occurs at market value.
The Community Church buys 50 reams of copy paper for $5.50 each. As the church is registered for GST, it claims an input tax credit of $25. The church’s youth group is a non-profit sub-entity. It uses 20 reams of the copy paper for a leaflet drop. The church is deemed to have sold the 20 reams of paper to the youth group for market value. Therefore, the church must remit $10 GST to the Taxation Office on its next BAS. As the youth group is not registered for GST, it cannot claim an input tax credit.
These rules ensure that the church does not obtain a GST benefit for supplies that are in fact used by its non-registered non-profit sub-entities. The effect of these rules can be partly overcome by ensuring that each non-profit sub-entity keeps its own funds separate from the church funds and does not use any of the church’s resources or supplies. Overhead costs or common supplies, for example rent and electricity, must be apportioned by the church between itself and its sub-entities.
The church rents a factory for $2,200 per month. Its monthly electricity bill is $165 per month. The youth group is a non-registered non-profit sub-entity. Approximately 10% of the total use of the factory each month is by the youth group, but it makes no contribution towards the rental and electricity costs. On its Business Activity Statement, the church should claim GST input tax credits of $200 per month for the rent and $15 per month for the electricity. However, it must also remit 10% of these amounts for supplies to its associate, being the church youth group. The amount of $21.50 per month should be included at G1 on the Business Activity Statement.
Grouping may be useful where churches act cooperatively or that they transacts with each other regularly. Churches or its non-profit sub-entities can choose to be grouped under the general grouping provisions or under the GST religious grouping provisions.
General grouping rules
Two or more non-profit organisations can choose to group for GST purposes under the general GST rules provided:
- They belong to the same non-profit organisation
- The organisations are all registered for GST
- The organisations have the same GST tax periods (ie monthly or quarterly) and
- The organisations account for GST on the same basis (ie cash or accruals)
The general GST grouping provisions can only apply to entities that are either a company, partnership, trust, individual or non-profit sub-entity. It does not generally apply to entities that is an association except if the association is a non-profit body and all other members of the proposed GST group are also non-profit bodies belonging to the same non-profit association (e.g. independent churches under a denomination). The denomination can choose to treat some or all of its GST registered churches as a group for GST purposes. Alternatively, if a denomination has treated churches under it as non-profit sub-entities, it can still apply the general GST grouping provisions to group it with some or all of its churches.
A GST group must nominate a representative member who will administer the group’s GST obligations. The representative member needs to collect GST data from all the other group members each period and lodges a single tax return for the group. Transactions between group members will not be subject to GST.
GST Religious Groups
Two or more entities can choose to form a GST religious group if:
- All the entities have obtained an ABN and registered for GST
- All the entities are endorsed as income tax exempt
- All the entities are members of the same religious organisation, and
- No entity belongs to any other GST religious group
Similar to general grouping rules, transactions between members of a GST religious group are not subject to GST. For example, the contribution by the church to its denominational body would not be subject to GST. Insurance payments made to the denomination do not need to include GST. These transactions should also be excluded from the church’s Business Activity Statement. If you are using Reckon, you would not allocate a GST code to the payment. If you are using MYOB, you would allocate the “no tax” code.
It is important to note that members of a religious group cannot choose to charge GST on supplies between members even if in some cases it would be administratively easier to do so. The GST Act does not contain any discretion. Supplies between members of a GST religious group are not subject to GST.
Unlike the general GST grouping provisions, the GST religious group requires that each member of the group be liable for its own GST obligations and lodge its BAS. Therefore, most denominations have chosen to form a GST religious group with all their GST registered churches because it does not need to bear all the GST administrative burden that is required under the general grouping provisions but can still enjoy the GST exemption on all transactions made between members.
A church cannot belong to more than one GST group, whether this be a normal GST group or a GST religious group.
Application to be a GST group
A proposed group needs to apply to the Taxation Office to be either a general GST Group or a GST Religious Group.
The General GST Group application form “Application to register or change details for a GST group” can be downloaded from the Taxation Office’s website www.ato.gov.au. The same form is used to update details of the group such as adding new member, changing group representative, etc.
The “Application to form, cancel or change details for a GST Religious Group” can also be downloaded from Taxation Office’s website.
Is your church required to register for GST?
Monthly, Quarterly or Annual GST Returns
When Should GST Returns be Lodged?
When registering for GST, a church must nominate whether it will lodge GST returns monthly or quarterly.
Provided the church’s turnover is less than $20m, it can elect to lodge returns monthly or quarterly. Where the church’s turnover is less than $150,000, it can choose to report GST on an annual basis.
Where a church elects to lodge its returns monthly, the due date for lodgement is 21 days after the month end.
The dates for quarterly returns are as follows:
||(July to September)
||(October to December)
||(January to March)
||(April to June)
Monthly verses Quarterly Returns
An entity is likely to choose to lodge quarterly returns if it has to remit GST each quarter to the Taxation Office. This will occur if the GST collected by the entity on its revenue transactions is greater than the GST input tax credits it can claim back on its purchases. Most businesses will be in this category.
An entity might choose to lodge monthly if it usually receives a refund from the Taxation Office. This will occur if the GST collected by the entity is less than the GST input tax credits it can claim back on its purchases. Lodging monthly will allow the entity to receive its refund more promptly, thus improving its cash flow. Most churches will be in this category. Many of a church’s revenue transactions will be free of GST. For example, most of a church’s revenue comes from tithes and offerings, which are not subject to GST.
The main disadvantage of lodging monthly is the increased administrative requirements of needing to prepare twelve returns each year rather than four. For this reason, most churches will choose to lodge quarterly returns.
Advantage of Lodging Monthly
- Receive GST refund more promptly, resulting in an improved cash flow
Disadvantages of Lodging Monthly
- Greater administrative burden
- Remit GST earlier where the GST collected exceeds the GST paid
A church that has chosen to lodge monthly can change to a quarterly basis at the end of a quarter and vice versa. This change can be made by an authorised person over the phone with the Taxation Office.
Annual GST Reporting
Where a church is not required to register as its turnover is less than $150,000 and has not chosen to pay its GST in instalments, it can elect to report GST annually. This election must be made by 21 August if you currently report monthly and 28 October if you report quarterly. If you are registering for GST for the first time, you have up to six months to elect to report annually for that year. The Taxation Office may consider late applications in special circumstances.
An annual election will remain in force until you revoke it or you no longer qualify (for example your turnover exceeds $150,000).
If you elect to report GST annually, you may still receive Instalment Activity Statements on a monthly or quarterly basis in order to remit other tax obligations such as PAYG withholding liability. The annual GST return will be due for lodgement on 28 February after the end of the financial year.
As most churches receive GST refunds each period, few churches will wish to utilise this election. Although it may slightly reduce the administrative burden on church treasurers, churches will need to wait much longer to receive their GST refunds.
Cash or Accruals
Not-for-profit organisations may lodge GST returns using either a cash or an accruals method of accounting. The accounting method determines when the church must remit GST it has collected to the Taxation Office. It also determines when the church can claim input tax credits for the GST included in its purchases.
A church must nominate on its registration form whether it will use the cash or accruals method. If the church later wants to change from cash to accruals method or vice versa, this change can be made by an authorised person over the phone with the Taxation Office.
Under this method, the church will remit GST on its revenue transactions when it receives payment. Similarly, GST can only be claimed from the Taxation Office when the church has actually paid for the goods or services.
Under this method, the GST on revenue transactions will be included in the GST return for the period in which:
- The church first receives any part of the payment for the sale, or
- The church issues an invoice for the sale
Whichever is first.
Similarly the claim for GST paid on purchases is included in the GST return for the period in which:
- The church pays any part of the amount due, or
- The church receives an invoice
Whichever is first.
A church hires out its hall. It issues an invoice for the hall hire on 15 September. It receives payment on 10 October. Assume the church lodged its GST returns on a quarterly basis.
Under the cash method, the church will include the GST in the return for the quarter ended on 31 December. Under the accruals method, the GST is included in the return for the quarter ended 30 September.
Whether accounting under a cash or accruals method, input tax credits on purchases are only claimable in the period where the tax invoice for the purchase is held unless the purchase is less than $82.50 whereby tax invoice is not required in order to claim input tax credits.
If the revenue transaction is a cash transaction, there is no difference between the cash and accruals method. Similarly there is no difference between the methods if the purchase is a cash purchase.
Which Method Should A Church Choose?
Most church revenue transactions are cash transactions. Churches rarely provide goods or services on credit. Therefore, most GST that a church collects will need to be remitted to the Taxation Office on the same date, irrespective of whether the cash or accruals method is used.
However, churches often buy goods or services on account. For example, churches often maintain an account with their local Christian bookshop. Insurance companies send the church an invoice prior to payment. Therefore, the accruals method will allow a church to claim GST input tax credits earlier than the cash method. For many churches, the accruals method will result in a more positive cash flow impact.
Cash flow though is only one aspect of choosing the most appropriate accounting method. Most churches currently keep records and prepare accounts using the cash method. Generally, only larger churches include debtors and creditors in their monthly accounts. Accordingly, to use the accruals method for GST purposes may require significant adjustments to the church’s administrative and accounting systems. For this reason alone, many churches are likely to choose the cash accounting method.
The example below highlights the timing difference between monthly and quarterly and between cash and accruals.
A church purchases a computer on 1 October 2018 for $2,200, including $200 GST. The computer was acquired on terms and was actually paid for on 3 January 2019. The cost of the computer to a church that is not registered is simply the full $2,200. However for a register church they would be able to claim back the $200 GST paid as follows:
- A church registered as monthly/cash would claim back the $200 GST input tax credit by 21 February 2019 (being the 31 January 2019 return)
- A church registered as quarterly /cash would claim back the $200 GST input tax credit by 28 April 2019 (being the 31 March 2019 return)
- A church registered as monthly/accruals would claim back the $200 GST input tax credit by 21 November 2018 (being the 31 October 2018 return), and
- A church registered as quarterly /accruals would claim back the $200 GST input tax credit by 28 February 2019 (being the 31 December 2018 return)
Most churches will obtain a cash flow benefit from the accruals method. However, before choosing this method, the church should consider which method it currently uses for accounting and record keeping purposes. A church, which is using the cash method for accounting, is likely to find it easier to also use this method for GST.
Income Tax Exemption and Charity Tax Concessions
In order to be income tax exempt, a church must be registered as a charity with the ACNC. Applications are lodged online through the ACNC portal. Once the ACNC has registered the church as a charity, the ACNC will forward the application to the Taxation Office.
The Taxation Office will then endorse the charity as income tax exempt and entitled to the FBT rebate and the GST charity concessions. It will also be entitled to claim refundable imputation credits on dividends.
A charity’s tax exemption is shown on the Australian Business Register and therefore is public information.
Australian Business Number
The ABN is used as the single identifier of an organisation for Government purposes. In order to register for GST, obtain endorsement as a charity or obtain deductible gift status the church must apply for an Australian Business Number (ABN). The same application can be used to apply for the ABN and to register for GST. Even if a church does not register for GST, it should still apply for an ABN.
Any changes to a church ABN registration details (eg change of address) must be notified to the Commissioner of Taxation within 28 days. This can be done online through the Australian Business Register.
The ABN must be included on tax invoices issued by the church. These are discussed in detail in Tax Invoices. In some circumstances, the church’s ABN will be included on its purchase invoices.
A religious practitioner undertaking activities as a member of a religious institution cannot obtain an ABN.
The ABN is also used to identify individuals and organisations that avoid paying income tax.
Therefore if a church pays an entity or an individual for a supply of a good or service, the church must withhold tax from the payment at 47% unless one of the following exclusions applies:
- The provider’s invoice includes its ABN
- The payment is $75 or less, excluding GST
- The provider is a local governing body
- The provider is a religious practitioner undertaking activities as a member of a religious institution, or
- The supplier completes a “Statement by Supplier” stating that they are not carrying on an enterprise
Example– The church receives an invoice for $200 from an electrician for some electrical repair work. The invoice does not show the electrician’s ABN. The church must withhold 47% tax from the payment and remit this amount to the Taxation Office.
If a church makes supplies to a business or other non-profit organisation and the church does not have an ABN, the other entity will need to withhold tax.
Special rules exist regarding the withholding tax on payments made to religious practitioners.
Employees and Contractors
Churches may pay some individuals as contractors, rather than employees, eg gardener, repairer, etc.
If a contractor does not have an ABN, the organisation must withhold tax at 47% if the payment is more than $82.50 (GST inclusive). However, an exemption exists where the contractor completes a statement that they are carrying on a hobby. The statement is available from the Taxation Office website under forms as “Statement by a supplier (reason for not quoting an ABN to an enterprise)” NAT 3346.
As for employees, payment of salary, wages, allowances, etc. to them will be subject to PAYG withholding and will not be subject to withholding for not quoting ABN. Employees are not entitled to be registered for an ABN as they are not carrying on an enterprise.
Some ministers are employees of the church. However, due to the organisational structure of some denominations, some ministers are not employees of the local church.
If the minister is an employee, the church will withhold tax from the minister’s salary under the Pay As You Go (PAYG) withholding legislation for salary and wages.
Special PAYG withholding rules also require churches to withhold tax under PAYG system for payments made to non-employee ministers for activities done in pursuit of a vocation as a religious practitioner and as a member of a religious institution. However, some locum services payments are zero rated (see Zero PAYG Withholding Rate).
The ABN withholding rules for payment to contractors will not apply where a religious practitioner undertaking activities as a member of a religious institution receives a payment for those activities as the religious practitioner is not entitled to be register for ABN in relation to those activities. This will cover payments such as payments for funerals, weddings, guest speaking arrangements and offerings.
Checklist for Registration
- Ensure the church is not already included in the denomination’s head office registration
- Compare turnover with the registration threshold
- If turnover is less than the registration threshold, decide whether or not to register
- Determine whether to use the cash or accruals accounting method for GST
- Determine whether to remit GST monthly or quarterly
- Register for ABN and/or GST
- Apply to the ACNC for endorsement as a charity
- Record any non-profit sub-entities and maintain separate accounts for each sub-entities