Income tax exempt organisations
To work out if your not-for-profit (NFP) organisation is exempt from income tax you first need to know if it is a charity.
If your organisation is a charity, it must be endorsed by us to be exempt from income tax.
If your organisation is not a charity, you can self-assess its income tax status. 'Self-assess' means an organisation can work out for itself whether it is income tax exempt or taxable. Organisations that can self-assess their income tax status do not need to be endorsed by us or get confirmation of their income tax status from us.
This flowchart shows how to work out if your organisation is exempt from income tax.
Working out if your organisation is exempt from income tax
Charities must be endorsed by us to be income tax exempt.
Charities, including health promotion charities, public benevolent institutions and religious institutions, must be registered with the Australian Charities and Not-for-profits Commission (ACNC) before we can endorse them to access charity tax concessions.
If your organisation is a charity, it cannot self-assess as income tax exempt, even where it might fall in the description for a type of entity that can self-assess. Instead, it must meet the requirements for charity registration and then become endorsed to be income tax exempt.
Example – Charity and income tax exemption
The XYZ School is a public educational institution and a charity.
As The XYZ School is a charity it cannot self-assess as income tax exempt. It must be registered with the ACNC as a charity and endorsed by us to access income tax exemption.
End of example
If your organisation is not a charity, it can self-assess if it is exempt from income tax. It does not need to be registered with the ACNC or endorsed by us to be exempt.
To self-assess, you need to take the following steps:
1. Check the types of income tax exempt organisations
Check the Types of income tax exempt organisations 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 all the requirements.
For many of the exempt entity types, your organisation must be 'not-for-profit' and also meet the following conditions:
- pass one of three tests
- comply with all the substantive requirements in its governing rules
- apply its income and assets solely for the purpose for which it is established.
You will be directed to further information if these requirements apply.
3. Complete the worksheet
Complete the relevant worksheet as a record of your review.
4. Understand the outcome
Understand what the outcome from the worksheet means for your organisation and what to do next – see the table below.
Table: Self-assessment outcomes
To work out if your not-for-profit organisation is exempt from income tax you first need to consider if it is a charity and so needs to be endorsed by us. If your organisation is not a charity, you can self-assess its income tax status.
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. See Review your tax status.
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 (QC 23099).
If you cannot work out if your organisation is income tax exempt: