The Australian Taxation Office (ATO) released two guides for non-profit organizations on GST rules for gifts or donations and the sale of donated second-hand goods. In addition to clarifying how and when GST applies to gifts, donations and sales of donated goods, the ATO also explained the GST accounting methods available to non-profit organizations, depending on their entity type.

Key GST Rules for Non-Profits

The ATO clarified that non-profit organizations are divided into not-for-profit (NFP), endorsed charities, gift-deductible entities, and government schools. Notably, NFP organizations must register for GST once their GST turnover exceeds AUD 150,000 (approximately USD 105,000). For GST purposes, gifts and donations received by an NFP organization are generally not treated as payments for a supply. As a result, an NFP does not have to pay GST on these amounts and does not include them when calculating its GST turnover.

Sales of second-hand goods can be GST-free when sold by an endorsed charity, certain gift-deductible entities, or government schools. However, to be GST-free, the goods must have been either donated to the organization or acquired from another eligible organization through a GST-free sale. Additionally, the goods must retain their original character. While cleaning or repairing them is allowed, changing or substantially altering the goods means the sale will no longer qualify for the GST-free treatment.

For sales that meet criteria for GST-free sales, organizations do not charge or pay GST on the sale but can still claim GST credits for GST included in purchases related to those sales. Nevertheless, the value of GST-free second-hand goods sales must still be included in the calculation of the organization’s GST turnover.

NFPs, endorsed charities, eligible gift-deductible entities, and government schools that are registered for GST can choose between the cash and non-cash methods for accounting for GST. The method these organizations choose determines how and when they must report GST.

The cash method is generally available for small businesses with an aggregated turnover of less than AUD 10 million (approximately USD 7 million), enterprises that are not carrying on a business but have a GST turnover of AUD 2 million (approximately USD 1.4 million) or less, and entities that account for income tax on a cash basis. Organizations that do not meet these requirements or choose not to apply the cash method must use the non-cash method for accounting for GST.

Conclusion

By clarifying the application of GST to gifts, donations, and the sale of donated goods, the ATO provides essential guidance to help non-profit organizations maintain compliance while maximizing their charitable impact. Understanding these specific GST concessions and accounting methods ensures that these organizations can focus their resources effectively on their core missions rather than administrative tax complexities.