No Corporation Tax liable under Mutual Trading

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We received clarification from Revenue in relation to the treatment of surplus funds by a non-for profit organisation.

When a non-profit organisation generates surplus funds (usually by way of members' annual subscriptions, donations, holding of raffles etc.) and these are directed back into the organisation there may not be a liability to corporation tax under the principle of Mutual Trading (an entity cannot trade with itself).

So how can an organisation prove they are mutual? If the organisation can show that there is a common fund, a common purpose, conducted without a trading/profit motive and where any surplus will be returned to the members.

For a basic example Mutual Trading would occur where say, a local historical society receives a yearly subscription from each of its members to fund lectures, hire of hall etc. Although technically there may be a surplus at the end of the year this surplus/"profit" would be used strictly to fund future events.

• there would be no dividends issued to members etc.
• the surplus would go directly back to its members. However, the society would not be allowed engage in activities with third parties (speculation of the funds).

In the example above the concept of Mutual Trading would exist and any surplus funds would not be liable to tax. Also, it would not be necessary for the company to complete and return CT1 forms.

Detailed guidance available in SC844 (part 36) of TCA 1997 Notes.

Sheldon Zhang is a Manager in OSK Audit. Contact OSK Accountants Dublin for more details on 01 439 4200.

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• Not-For Profit

• Mutual Trading