Income tax guide for non-profit organisations

Working out if your organisation is income tax exempt

To work out if your non-profit organisation is exempt from income tax you first need to consider if your organisation:

• needs to be endorsed by us
• can self-assess its income tax status.

The following types of organisations must be endorsed by us if they want to be exempt from income tax:

• registered charities
• income tax exempt funds (ITEFs).

Organisations that are not registered charities or ITEFs can self-assess their income tax status. This means they can work out for themselves if they are exempt. They do not need to be endorsed by us or get confirmation of their income tax status from us.

The flowchart below provides the steps for you to work out if your organisation is exempt from income tax.

Diagram 1: Working out if your organisation is exempt from income tax

Endorsement

Registered charities and income tax exempt funds must be endorsed by us to be income tax exempt.

Registered charities

Registered charity means an entity that is registered with the Australian Charities and Not-for-profits Commission (ACNC) as a charity.

From 3 December 2012, charities, including HPCs, PBIs and religious institutions, must be registered with the ACNC before we can endorse them to access charity tax concessions.

If your organisation is a charity, you can choose to register it with the ACNC if it is eligible to be registered. However, for your organisation to access charity tax concessions, it must first be a registered charity and then endorsed by us.

If your organisation is a registered charity, it cannot self-assess its income tax status. To be exempt from income tax, your organisation must be endorsed by us.

For more information about: what is a charity, refer to Is your organisation a charity? (QC 24483) registering as a charity with the ACNC, visit the ACNC website at www.acnc.gov.au obtaining endorsement, refer to Endorsement to access charity tax concessions (QC 13267).

Income tax exempt funds

Income tax exempt funds are funds that:

• are established by will, or instrument of trust, solely for the purpose of providing money, property or benefits to, or establishing, DGRs
• distribute solely to income tax exempt DGRs
• are not charities
• are endorsed by us as exempt from income tax.

For more information about what is an income tax exempt fund, refer to Is your fund an income tax exempt fund? (QC 81451).

An income tax exempt fund cannot self-assess its income tax status. To be exempt from income tax, your fund must be endorsed by us.

For more information about obtaining endorsement as an income tax exempt fund, refer to the Endorsement process for income tax exempt funds (QC 62731).

Self-assessment

If your organisation is not a registered charity or an income tax exempt fund, it can self-assess if it is exempt from income tax. It does not need to be endorsed by us to be exempt.

To self-assess if your organisation is exempt from income tax, you need to take the following steps:

1. Check the types of income tax exempt entities

Check the Types of income tax exempt entities to see if your organisation fits within any of the types listed. Entities that can self-assess their income tax status come from these broad groups:

• Community service organisations
• Cultural organisations
• Educational organisations
• Employment organisations
• Health organisations
• Resource development organisations
• Scientific organisations
• Sporting organisations

2. Check your organisation meets all the requirements

If you think your organisation fits within any of the types of exempt entities, check the requirements for that entity type to make sure your organisation meets them.

For many of the exempt entity types, your organisation must be 'non-profit' and pass one of three tests. You will be directed to further information if these requirements apply.

3. Complete the worksheet

Complete the Income tax status review worksheet for self-assessing non-profit organisations (NAT 74141) as a record of your review.

4. Understand the outcome

Check 'Table 1: Self-assessment outcomes' below for an explanation of what the outcome from the worksheet means for your organisation and what to do next.

Regardless of whether your organisation is exempt from income tax, other tax obligations and concessions may apply to your organisation. For more information refer to our guide Tax basics for non-profit organisations (NAT 7966).

TABLE 1: Self-assessment outcomes

Exempt	Not-exempt	Unsure
If you work out your organisation is income tax exempt: Your organisation does not need to pay income tax or lodge income tax returns, unless we specifically ask it to. Your organisation does not need to get confirmation of its exemption from the ATO. You should carry out a yearly review to check if your organisation is still exempt. You should also do this when there are major changes to your organisation's structure or activities. The worksheet will help you self-review.	If you work out your organisation is not income tax exempt: Your organisation is taxable and may have to lodge income tax returns and pay tax. Your organisation may have the benefit of special rules for working out its taxable income, lodging income tax returns and special rates of tax. For more information refer to our guide Mutuality and taxable income (NAT 73436).	If you cannot work out if your organisation is income tax exempt: You can phone us on 1300 130 248 from 8.00am to 6.00pm Monday to Friday for help. You can apply for a private ruling from us on the exemption of your income - refer to How to apply for a private ruling (QC 34047). We will need information and copies of documents relevant to your possible exemption.