Sales of land by non-profit associations

Non-profit associations (gemeinnützige Vereine) are a vital part of society. Despite the important role they play, such associations can be subject to taxation. As soon as an association engages in economic activity which brings it into competition with other market participants, such activity is subject to taxation, in order to maintain a level playing field. Nevertheless, associations established for a charitable purpose, can, under certain conditions, claim tax benefits.

Promoting the public good

A fundamental precondition for an organisation to be considered a charitable association is that it promotes the public good. This is the case if the association operates on a non-profit basis and supports the wellbeing of society spiritually, culturally, morally or materially, i.e., within the scope of the association’s activities, it must be possible for the association to support the wellbeing of an unlimited number of people through the realisation of its purpose.

Essential and non-essential auxiliary businesses

Another decisive factor in determining whether such an association enjoys tax advantages is the existence of essential and non-essential auxiliary businesses.

• An essential auxiliary business is any commercial operation that is essential to fulfilling the association’s tax-privileged purpose (e.g. a theatre operation belonging to a non-profit theatre association).
• A non-essential auxiliary business is a commercial operation that does support the achievement of tax-privileged purposes, but only facilitates these indirectly (e.g. gala events, flea markets, etc.). Non-essential auxiliary businesses are subject to corporate income tax.

Decision of the Supreme Administrative Court

The Austrian Supreme Administrative Court recently had to rule on whether the disposal of inherited plots of land by non-profit associations is subject to property income tax, or if tax-exempt disposal is possible. The proceeds from the sale of a plot of land were used by the association for public-benefit purposes.

In this regard the court argued that in the case of an essential auxiliary business, the commercial activity and the realisation of the tax-privileged purpose coincide, because the tax-privileged purpose of the association cannot be achieved without the commercial activity or by any means other than the commercial operation.
A business that only operates to raise funds for the fulfilment of the tax-privileged purpose cannot be deemed to be an essential auxiliary business. Continuous sale of plots of land is not a charitable activity, but serves only to raise funds, and is therefore not an essential auxiliary business. Therefore, gains on disposal are subject to property income tax, even when disposals of plots of land help to finance the association’s tax-privileged purpose.

If an association wishes to dispose of land without being subject to taxation, verification is required that the plot of land directly supported the fulfilment of the tax-privileged purpose (for instance by providing accommodation for persons requiring care). Whether tax-exempt disposal of a plot of land is possible therefore needs to be assessed on a case-by-case basis.