The interface between the organisation's tax-free income and taxable income
Even if an organisation is considered to be tax-free, it will be taxable for income generated through commercial activity, including the letting of real property (even in cases where the property is partly used by the organisation itself). A distinction must therefore be made between income which is covered by the tax exemption and income which is taxable as commercial activity.
Income which realises the organisation’s non-commercial purposes will be tax-free in its entirety. However, income which is used to finance the purpose will be considered commercial activity and will be taxable. For example, when a student association lets bedsits to students, the rental income will then be tax-free in its entirety. This income realises the non-commercial purpose of the student association to offer students reasonable accommodation. However, if the student association lets the bedsits as a summer hotel, this will constitute commercial activity. This income is used to finance the purpose.
When does commercial activity take place?
No specific limit has been set for the number of events or assignments that can be carried out during a year before the activity will be considered to be taxable commercial activity. Each case will be assessed on an individual basis One or a limited number of individual bingo events or flea markets will normally be sufficiently random in nature for them not to be considered as taxable commercial activity.
If the activity is recurrent, e.g. frequent relocation jobs, this would be a factor which suggests that taxable commercial activity may be taking place. If the organisation is given assignments as a result of active marketing, this factor would suggest that taxable commercial activity is taking place. Note that taxable commercial activity may be taking place even if the activity is carried out using free labour, e.g. voluntary tasks.
Kiosks and cafés
If an institution or organisation which “does not have a commercial purpose” sells goods from a kiosk or café with set daily opening hours, this will be deemed to be taxable commercial activity, regardless of whether or not the kiosk or café is located at or close to a sports arena, for example.
Kiosks and cafés will generally not be considered to be taxable commercial activity if the kiosk or café:
• is only open during organisation events or training
• has sales which are aimed at spectators and participants
• offers a limited range of typical kiosk or café products, and
• is staffed by unpaid personnel.
Sponsorship and advertising income
Sponsorship and advertising income in a tax-free organisation will generally be tax-free. This will apply even if such income is taxable under the VAT rules.
When sponsorship and advertising activity has the character of more extensive and permanent sales activity, the income may be taxable for the organisation. A Supreme Court ruling dating from 1997 stated that sales of supporters’ equipment by a football club does not constitute taxable commercial activity.
Exemption from tax liability for commercial activity - the NOK 70,000/140,000 thresholds
If, following a specific assessment, the activity is considered to constitute commercial activity and the income is therefore taxable, the income will still be exempt from tax if the total gross turnover does not exceed NOK 140,000 a year for charitable and benevolent organisations, or NOK 70,000 for other tax-free organisations.
If the gross turnover from this activity exceeds the above-mentioned thresholds, the organisation will be taxable for the entire profit from the commercial activity, not just for the component that exceeds the amount thresholds of NOK 70,000/140,000.
The amount thresholds apply to each individual “entity or association under an independent board”; see Section 2-2 first paragraph (h) of the Tax Act.
In order to constitute a separate calculation unit for the purposes of the thresholds, the unit must be organised as a separate legal entity with its own organisation number.
Previous wordings in this brochure have led to a perception that, for example, sports associations that divide their organisations into separate sections for hiking, skiing, athletics, football, etc. can utilise the threshold separately for each section. This is an incorrect reading of the law, since sections of this kind will not be separate legal entities. See the Directorate of Taxes’ statement of 1.12.2016.(in Norwegian)
For organisations that have made arrangements to calculate separate threshold amounts for each section/sub-entity in line with information previously provided in this brochure, we appreciate that time may be needed to make rearrangements. The Directorate of Taxes has therefore determined in its statement that the tax authorities will not object to changes in practices being implemented starting from 1 January 2018.
Deductions for costs for the organisation's commercial activity
Tax-free organisations are only entitled to deduct costs linked to the taxable part of their activity. They are not entitled to deduct expenses associated with the tax-free part of their activity. In practice, it is assumed that costs linked to both the taxable part and the tax-free part can be distributed. The deduction entitlement concerns the depreciation of fixed assets and general operating expenses, such as expenses for salaries, goods procurement, advertising costs and transport costs. Interest costs relating to loans linked to the taxable part of the activity also give entitlement to a deduction entitlement.
Only actual costs may be deducted. For example, no deductions may be made relating to voluntary work.
If the organisation records a deficit in its taxable activity in a particular year, the deficit can be carried forward as a deduction from any taxable surplus in subsequent income years.
The net income from the organisation's commercial activity (general income) is the organisation’s income tax basis. The net income is taxed at 25 per cent
Tax liability for assets
If a tax-free organisation has taxable income, it must also pay wealth tax on the assets that are used in the taxable activity. Assets under NOK 10,000 are tax-free. Subject to these conditions, research foundations which receive a basic grant from the State (see Guidelines for State financing of research institutions) are exempt from tax for the capital value of assets that are primarily used in the institution’s research activities. The same applies to foundations which own shares in such research institutions; see Section 2-36 fifth and sixth paragraphs of the Tax Act.