The boundary between the organisation's tax-free income and taxable income

Even if an organisation is considered to be tax-exempt, it will be tax liable 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). Therefore, a distinction must be made between income that is covered by the tax exemption and income that is taxable as commercial activity.

Income realising the organisation’s non-commercial purposes will be tax-free in its entirety. However, income 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 be tax-free in its entirety. This income realises the non-commercial purpose of the student association to offer students affordable 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 is the activity commercial?

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 taxable commercial activity. Each case will be assessed on an individual basis. For instance, 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 recurring, e.g. frequent relocation jobs, this would be a factor suggesting that taxable commercial activity may be taking place. If the organisation is given assignments as a result of active marketing, this factor would indicate 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 work assignments.

Income from single, random activities and arrangements or assignments does not constitute commercial activity. The income is tax-free, even if turnover exceeds the tax-free amount. Examples of such income are income from occasional bazaars, flee markets or performances by sports clubs. The tax exemption also includes short term, occasional letting of a sports hall for trade fairs, etc. on weekends.   

Kiosks and cafés

If an institution or organisation that “does not have a commercial purpose” sells goods from a kiosk or café with set daily opening hours, this will be deemed 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 taxable commercial activity if the kiosk or café:

• is open only during organisation events or training
• has sales that 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-exempt organisation will generally be tax-free. This will apply even if such income is VAT liable under the Act relating to Value Added Tax.

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 philanthropic and public benefit institutions and organisations, or NOK 70,000 for other tax-exempt 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 threshold amount of NOK 70,000/140,000.

The threshold amounts apply to each individual “entity or association under an independent board”; see section 2-2 first paragraph (h) of the Taxation Act.

In organisations that are split in several divisions, the threshold amount(s) generally apply to each division with an independent board. This means that the division must have its own board of directors and keep their own accounts. The Tax Administration has not accepted further divisions, such as splitting a division into subdivisions to generate several tax-free threshold amounts.

For sports teams, separate threshold amounts has been accepted for a ski group and a football group, etc., but not further division into age specific groups or women’s and men’s groups. For congregations, activity groups of various kind has been accepted, but further division into age specific groups or women’s and men’s groups are not accepted.

This practice can be continued until amended rules are in place, the way the Ministry of Finance gives notice of in Prop 1 LS (2017-2018) (in Norwegian only).

Deduction for costs for the organisation's commercial activity

Tax-exempt organisations are only entitled to deduct costs linked to the taxable part of their activity. Therefore, 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.

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 tax rate for general income

Tax liability for assets

If a tax-exempt organisation has taxable income, it must also pay wealth tax on assets used in the taxable activity. Assets under NOK 10,000 are tax-free. Subject to certain conditions, research foundations that receive a basic grant from the state, see Guidelines for State financing of research institutions, are exempt from tax on assets that are primarily used in the institution’s research activities. The same applies to foundations that own shares in such research institutions, see section 2-36, subsections 5 and 6 of the Taxation Act.