Income tax exemption - Tax basics for non-profit organisations

Note: This document forms part of our publication Tax basics for non-profit organisations. To view the full publication, click here.

Introduction

Whether a non-profit organisation has to pay income tax will depend on whether or not the organisation is exempt from income tax.

Only certain categories of organisation are exempt from income tax. They come from these broad groups:

• charities
• community service organisations
• cultural organisations
• educational organisations
• employment organisations
• health organisations
• income tax exempt funds
• religious organisations
• resource development organisations
• scientific organisations, and
• sporting organisations.

How do you work out if your organisation is exempt?

The following organisations must be endorsed by the Tax Office to be exempt from income tax:

• charities, and
• income tax exempt funds.

Refer to Charity and Income tax exempt funds.

For more information on endorsement requirements see Endorsement requirements for charities and income tax exempt funds.

Other organisations can self-assess whether they are exempt from income tax. See Other non-profit organisations.

Charities and income tax exempt funds

There is a system of endorsement under which the following organisations must apply to the Tax Office to be exempt from income tax:

• charities, and
• income tax exempt funds.

If the Tax Office notifies you that your organisation is endorsed as an income tax exempt charity or income tax exempt fund:

• it is exempt from income tax, and
• it does not need to lodge income tax returns, unless specifically asked to do so.

There are important obligations that your organisation has as an income tax exempt charity or income tax exempt fund. Your organisation will need to:

• regularly review whether it is entitled to endorsement, and
• tell the Tax Office if it ceases to be entitled.

Other non-profit organisations

Organisations that are not charities or ITEFs can self-assess their entitlement to income tax exemption. They do not need to be endorsed by the Tax Office to be exempt from income tax. Most have additional tests and rules that must be met before the organisation can be exempt.

If you work out that your organisation meets all the requirements for income tax exemption:

• your organisation will not need to pay income tax, capital gains tax or lodge income tax returns (unless specifically requested to do so)
• you do not need to get confirmation of this exemption from the Tax Office, and
• you should carry out a yearly review to check whether your organisation is still exempt. You should also do this when there are major changes to your organisation’s structure or activities.

For more information about the requirements for the exempt categories (including the tests that have to be passed), refer to Income tax guide for non-profit organisations (NAT 7967). To obtain this publication, see More information.

If your non-profit organisation is not exempt from income tax, it is taxable - see Taxable organisations.

Last Modified: Wednesday, 6 June 2007