Income Tax Guide for Non-Profit Organisations (Current to 31 July 2015)

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About this guide

This document has been archived. It is current only to 31 July 2015.

The Income tax guide for non-profit organisations helps non-profit organisations work out if they are exempt from income tax.

Only certain types of non-profit organisations are income tax exempt.

You should use this guide if you are a treasurer, office bearer or employee involved in the administration of a non-profit organisation.

This guide does not cover:

Throughout this guide you will find important notes, look for this symbol, which will help you with key information.

You will also find 'more information' boxes, look for this symbol, which will show any further steps you may need to take or supplementary information you may need to refer to

We often refer to quick codes (QC) and NAT numbers. A quick code is used to search for specific information on our website. NAT numbers can be used to order publications that are available in paper format.

Income tax exemption - an overview

If your non-profit organisation is exempt from income tax, it does not need to pay income tax or lodge income tax returns, unless we specifically ask it to.

Non-profit organisations that are not exempt are taxable. Taxable non-profit organisations may have to lodge income tax returns and pay tax. They may also be able to access special rules for calculating their taxable income, lodging returns and special rates of tax.

Regardless of whether a non-profit organisation is exempt from income tax, other taxes and concessions may apply - for example, goods and services tax (GST), fringe benefits tax (FBT) and pay as you go (PAYG).

To be exempt from income tax, a non-profit organisation must meet the requirements for one of the types of exempt entities in the tax law.

If your non-profit organisation does not meet the requirements of one of the types of exempt entity, it cannot be exempt.

Not all types of non-profit organisations are exempt from income tax.

What's new?

This guide applies from 1 January 2014 and replaces Income tax guide for non-profit organisations (NAT 7967) which was released in December 2012.

The guide has been updated to include the following tax law changes that have occurred since the last edition of Income tax guide for non-profit organisations.

Charities

From 3 December 2012, an entity which falls within the scope of the Australian Charities and Not-for-profits Commission (ACNC) is not income tax exempt unless the entity is registered under the Australian Charities and Not-for-profits Commission Act 2012.

The only entities currently registered by the ACNC are charities. Therefore, a charity must be registered with the ACNC and endorsed by us to be income tax exempt.

New conditions

The tax law has been amended to include two new conditions that apply to income tax exempt entity types, including registered charities, from 1 July 2013.

Generally, your organisation must meet both of the following new conditions, as well as other requirements, to be income tax exempt:

  • it complies with all the substantive requirements in its governing rules
  • it applies its income and assets solely for the purpose for which it is established.

Some organisations will not be required to meet these new conditions.

Income tax exempt funds

From 1 January 2014, the specific income tax exemption for income tax exempt funds (ITEFs) has been removed.

New ancillary funds established to provide benefits to charitable and charity-like government deductible gift recipients (DGRs) must apply for registration with the ACNC as a charity and be endorsed by us to access income tax exemption.

Funds endorsed as ITEFs as at 31 December 2013 are automatically treated as:

  • registered with the ACNC as charities
  • endorsed by us as income tax exempt.

An opt-out provision is available.

For more information refer to 'Statutory definition of charity - consequential amendments' in Not-for-profit reforms.

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 registered with the ACNC and endorsed by us
  • can self-assess its income tax status.

Charities must be registered with the ACNC and endorsed by us if they want to be exempt from income tax.

Organisations that are not charities 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 must be endorsed by us to be income tax exempt.

Registered charities

Registered charity means an entity that is registered with the ACNC as a charity.

Charities, including health promotion charities, public benevolent institutions 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 be a registered charity and endorsed by us.

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

For more information about:

Self-assessment

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 and 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 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 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

ExemptNot-exemptUnsure

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 17010). We will need information and copies of documents relevant to your possible exemption.

Types of income tax exempt entities

Registered charities are also a type of exempt entity.

These organisations need to be endorsed by us to be exempt from income tax and should refer to Endorsement to access charity tax concessions (QC 16239) for more information.

All of the following organisations can self-assess their income tax exempt status if they are not also a charity.

TABLE 2: Entities that can self-assess their income tax status

Type of exempt entityFor the requirements see

COMMUNITY SERVICE ORGANISATIONS

Community service - a non-profit society, association or club established for community service purposes except political or lobbying purposes. Conditions apply.

Community service organisations

CULTURAL ORGANISATIONS

  • Art - a non-profit society, association or club established for the encouragement of art. Conditions apply.
  • Literature - a non-profit society, association or club established for the encouragement of literature. Conditions apply.
  • Music - a non-profit society, association or club established for the encouragement of music. Conditions apply.
  • Musical purposes - a non-profit society, association or club established for musical purposes. Conditions apply.

Cultural organisations

EDUCATIONAL ORGANISATIONS

  • Public educational institution - conditions apply.

Educational organisations

EMPLOYMENT ORGANISATIONS

  • Employee association - registered or recognised under the Fair Work (Registered Organisations) Act 2009 or an Australian law relating to the settlement of industrial disputes. Conditions apply.
  • Employer association - registered or recognised under the Fair Work (Registered Organisations) Act 2009 or an Australian law relating to the settlement of industrial disputes. Conditions apply.
  • Trade union - conditions apply.

Employment organisations

HEALTH ORGANISATIONS

  • Public hospital - conditions apply.
  • Non-profit hospital - a hospital carried on by a non-profit society or association. Conditions apply.
  • Benefits organisation - a non-profit organisation that is a private health insurer within the meaning of the Private Health Insurance Act 2007.

Health organisations

RESOURCE DEVELOPMENT ORGANISATIONS

  • Agricultural resources - a non-profit society or association established for the purpose of promoting the development of Australian agricultural resources.
  • Aquacultural resources - a non-profit society or association established for the purpose of promoting the development of Australian aquacultural resources.
  • Aviation - a non-profit society or association established for the purpose of promoting the development of aviation.
  • Fishing resources - a non-profit society or association established for the purpose of promoting the development of Australian fishing resources.
  • Horticultural resources - a non-profit society or association established for the purpose of promoting the development of Australian horticultural resources.
  • Industrial resources - a non-profit society or association established for the purpose of promoting the development of Australian industrial resources.
  • Manufacturing resources - a non-profit society or association established for the purpose of promoting the development of Australian manufacturing resources.
  • Pastoral resources - a non-profit society or association established for the purpose of promoting the development of Australian pastoral resources.
  • Tourism - a non-profit society or association established for the purpose of promoting the development of tourism.
  • Viticultural resources - a non-profit society or association established for the purpose of promoting the development of Australian viticultural resources.
  • Information and communications technology resources - a non-profit society or association established for the purpose of promoting the development of Australian information and communications technology resources.

Resource development organisations

SCIENTIFIC ORGANISATIONS

  • Scientific institution - conditions apply.
  • Science association - a non-profit society, association or club established for the encouragement of science. Conditions apply.
  • Scientific research fund - a fund established to enable scientific research to be conducted by or in conjunction with a public university or public hospital. Conditions apply.

Scientific organisations

SPORTING ORGANISATIONS

  • Animal racing - a non-profit society, association or club established for the encouragement of animal racing. Conditions apply.
  • Game or sport - a non-profit society, association or club established for the encouragement of a game or sport. Conditions apply.

Sporting organisations

Community service organisations

Requirements checklist

Your organisation will be exempt from income tax, and can self-assess its exemption, if it meets all of the following requirements:

  • it is a non-profit society, association or club
  • it is established for community service purposes (except political or lobbying purposes)
  • it is not a charity
  • it meets one of the three tests
  • it complies with all the substantive requirements in its governing rules
  • it applies its income and assets solely for the purpose for which it is established.

Review your Entitlements and responsibilities and complete the Income tax status review worksheet for self-assessing non-profit organisations (NAT 74141).

Purposes

The main purpose of the organisation must be community service purposes. To work out your organisation's main purpose, you should look at your organisation's constituent documents, activities, use of funds and history. Any other purpose of the organisation must be incidental, ancillary or secondary to the community service purpose.

Community service purposes are altruistic - that is, community service organisations are established and operated with regard to the wellbeing and benefit of others.

Community service organisations promote, provide or carry out activities, facilities or projects for the benefit or welfare of the community or any members who have a particular need by reason of youth, age, infirmity or disablement, poverty or social or economic circumstances.

Community service organisations include:

  • associations of Justices of the Peace
  • associations of play groups
  • traditional service clubs
  • community service clubs
  • pensioner or senior citizens associations.

Organisations that seek to advance the common interests of their members are not altruistic and so cannot be community service organisations. If an organisation's main purpose is lobbying or political, its income will not be exempt.

Organisations that are not community service organisations include:

  • clubs that promote public speaking or debating
  • clubs that provide a social forum for retired or semi-retired business people, senior public servants and similar groups
  • clubs that provide a social forum for expatriates of a particular country
  • pensioner associations that conduct significant political or lobbying activities
  • military service unit organisations
  • social clubs for newcomers to a particular residential area.

Charity

If your organisation is a community service organisation, it might also be a charity.

For more information about charities, refer to Is your organisation a charity? (QC 16641).

If your community service organisation is also a charity, you cannot self-assess your income tax status. Your organisation must meet the requirements for charities to be income tax exempt.

For more information about registering with the ACNC and obtaining endorsement if your organisation is a charity, refer to Endorsement to access charity tax concessions (QC 16239).

Three tests

For a community service organisation that is not a charity to be exempt from income tax, it must pass one of the following tests:

  • physical presence in Australia test
  • DGR test
  • prescribed by law test.

If your organisation exists, operates and incurs its expenditure solely and entirely in Australia, you meet the physical presence in Australia test. You do not need to read anything further about the three tests.

If your organisation does not exist, operate and incur its expenditure solely and entirely in Australia, see the Explanation of the three tests to work out if you meet any of them.

Entitlements and responsibilities

Being exempt from income tax means your organisation:

  • does not need to lodge an income tax return (unless specifically asked to)
  • does not need to get confirmation of its exemption from us.

To work out if your organisation is exempt from income tax, you should:

Regardless of whether your organisation is income tax exempt, other taxes and concessions may apply to your organisation.

For more information about other taxes and concessions, refer to Tax basics for non-profit organisations (NAT 7966).

If your organisation does not meet all the requirements for exemption, you should check the other exemption categories in the Types of income tax exempt entities.

Organisations that are not exempt are taxable.

For more information about taxable organisations, refer to Mutuality and taxable income (NAT 73436).

Cultural organisations

Requirements checklist

Your organisation will be exempt from income tax, and can self-assess its exemption, if it meets all of the following requirements:

  • it is a non-profit society, association or club
  • it is established for either of the following purposes
    • the encouragement of art, literature or music
    • musical purposes
  • it is not a charity
  • it meets one of the three tests
  • it complies with all the substantive requirements in its governing rules
  • it applies its income and assets solely for the purpose for which it is established.

Review your Entitlements and responsibilities and complete the Income tax status review worksheet for self-assessing non-profit organisations (NAT 74141).

Purposes

The main purpose of your organisation must be the encouragement of art, literature or music or musical purposes. To work out your organisation's main purpose you should look at your organisation's constituent documents, activities, use of funds and its history. Any other purpose of the organisation must be incidental, ancillary or secondary to the musical purposes or encouragement of art, literature or music.

The words art, literature and music are not defined in the legislation and take their ordinary meaning.

For income tax exemption, art includes drama and ballet as well as painting, architecture and sculpture. It does not include exhibition of stamps by philatelic clubs and associations.

Literature includes a wide range of written or printed works. It includes works in different languages, on particular subjects or by particular authors.

Music includes the performance of vocal or instrumental works, and covers various styles (for example, classical, jazz, popular and liturgical).

Encouragement can include training, performing, displaying, providing information, studying, judging and critiquing. Professional associations set up to advance the common interests of their members (for example, artists or performers) do not have the required purpose.

Examples: Cultural organisations

Example 1

A non-profit society is set up to give people access to the writings of John Dennis. It lends books to members, runs a reading circle and helps people doing tertiary study on the author.

The society is established to encourage literature.

Example 2

A non-profit association is set up to perform Indian music written by contemporary Queensland composers. It liaises with composers, gets instruments and performs the music.

The association is established for musical purposes.

If your organisation's main purpose is providing social and recreational facilities and activities it will not be exempt. This is the case even if your organisation also gives money to encourage the arts, literature or music.

Example: Not a cultural organisation

A non-profit club's main operations are providing dining, gaming and leisure facilities at its clubhouse. It gives a yearly grant to an associated singing club, but is not involved with the singing itself. It is not exempt.

Charity

If your organisation is a cultural organisation, it might also be a charity.

For more information about charities, refer to Is your organisation a charity? (QC 16641).

If your cultural organisation is also a charity, you cannot self-assess your income tax status. Your organisation must meet the requirements for charities to be income tax exempt.

For more information about registering with the ACNC and obtaining endorsement if your organisation is a charity, refer to Endorsement to access charity tax concessions (QC 16239).

Three tests

For a cultural organisation that is not a charity to be exempt from income tax, it must pass one of the following tests:

  • physical presence in Australia test
  • DGR test
  • prescribed by law test.

If your organisation exists, operates and incurs its expenditure solely and entirely in Australia, you meet the physical presence in Australia test. You do not need to read anything further about the three tests.

If your organisation does not exist, operate and incur its expenditure solely and entirely in Australia, see the Explanation of the three tests to work out if you meet any of them.

Entitlements and responsibilities

Being exempt from income tax means your organisation:

  • does not need to lodge an income tax return (unless specifically asked to)
  • does not need to get confirmation of its exemption from us.

To work out if your organisation is exempt from income tax, you should:

Regardless of whether your organisation is income tax exempt, other taxes and concessions may apply to your organisation.

For more information about other taxes and concessions, refer to Tax basics for non-profit organisations (NAT 7966).

If your organisation does not meet all the requirements for exemption, you should check the other exemption categories in the Types of income tax exempt entities.

Organisations that are not exempt are taxable.

For more information about taxable organisations, refer to Mutuality and taxable income (NAT 73436).

Educational organisations

Requirements checklist

Your organisation will be exempt from income tax, and can self-assess its exemption, if it meets all of the following requirements:

  • it is a public educational institution
  • it is not a charity
  • it meets one of the three tests
  • it complies with all the substantive requirements in its governing rules
  • it applies its income and assets solely for the purpose for which it is established.

Review your Entitlements and responsibilities and complete the Income tax status review worksheet for self-assessing non-profit organisations (NAT 74141).

Public educational institution

A public educational institution is an institution that is available or open to the public or a section of the public and whose sole purpose is providing education. Any other purpose of the organisation must be incidental or ancillary to providing public education. Education in this context does not extend to merely providing information or lobbying.

Public educational institutions include:

  • universities or colleges managed by public bodies
  • grammar schools
  • primary and secondary schools run by churches or religious bodies
  • non-profit business colleges.

Organisations that are not public educational institutions include:

  • colleges run for the profit of the private owners
  • associations operated for their members' professional benefit
  • promotional and lobbying bodies.

Many other organisations connected with education are not public educational institutions. Examples are a parents and friends committee and a scholarship provider.

Charity

If your organisation is a public educational institution, it might also be a charity.

For more information about charities, refer to Is your organisation a charity? (QC 16641).

If your public educational institution is also a charity, you cannot self-assess your income tax status. Your organisation must meet the requirements for charities to be income tax exempt.

For more information about registering with the ACNC and obtaining endorsement if your organisation is a charity, refer to Endorsement to access charity tax concessions (QC 16239).

Three tests

For an educational organisation that is not a charity to be exempt from income tax, it must pass one of the following tests:

  • physical presence in Australia test
  • DGR test
  • prescribed by law test.

If your organisation exists, operates and incurs its expenditure solely and entirely in Australia, you meet the physical presence in Australia test. You do not need to read anything further about the three tests.

If your organisation does not exist, operate and incur its expenditure solely and entirely in Australia, see the Explanation of the three tests to work out if you meet any of them.

Entitlements and responsibilities

Being exempt from income tax means your organisation:

  • does not need to lodge an income tax return (unless specifically asked to)
  • does not need to get confirmation of its exemption from us.

To work out if your organisation is exempt from income tax, you should:

Regardless of whether your organisation is income tax exempt, other taxes and concessions may apply to your organisation.

For more information about other taxes and concessions, refer to Tax basics for non-profit organisations (NAT 7966).

If your organisation does not meet all exemption requirements, you should check the other exemption categories in the Types of income tax exempt entities.

Organisations that are not exempt are taxable.

For more information about taxable organisations, refer to Mutuality and taxable income (NAT 73436).

Employment organisations

Requirements checklist

Your organisation will be exempt from income tax, and can self-assess its exemption, if it meets all of the following requirements:

  • it is one of the following types of organisations
    • a trade union
    • an employee association
    • an employer association
  • it is not a charity
  • it complies with all the substantive requirements in its governing rules
  • it applies its income and assets solely for the purpose for which it is established
  • it meets further conditions for exemption.

Review your Entitlements and responsibilities and complete the Income tax status review worksheet for self-assessing not-for-profit organisations (NAT 74141).

Types of organisations

Three types of employment organisations can be exempt from income tax:

  • trade unions
  • employee associations that are registered or recognised under the Fair Work (Registered Organisations) Act 2009 or an Australian law relating to the settlement of industrial disputes
  • employer associations that are registered or recognised under the Fair Work (Registered Organisations) Act 2009 or an Australian law relating to the settlement of industrial disputes - an employer association that is not registered cannot qualify as a trade union.

Charity

If your organisation is an employment organisation, it might also be a charity.

For more information about charities, refer to Is your organisation a charity? (QC 16641).

If your employment organisation is also a charity, you cannot self-assess your income tax status. Your organisation must meet the requirements for charities to be income tax exempt.

For more information about registering with the ACNC and obtaining endorsement if your organisation is a charity, refer to Endorsement to access charity tax concessions (QC 16239).

Further conditions

For an employment organisation that is not a charity to be exempt from income tax, it must meet both of the following conditions:

  • be located in Australia
  • pursue its objectives and incur its expenditure principally in Australia.

Principally means mainly or chiefly. Less than 50% is not considered principally.

The pursuit of objectives in Australia can include things done offshore if they are only a means of pursuing those objectives. For example, sending employees to an offshore conference to aid their efficiency for the Australian objectives will be pursuing objectives in Australia.

You will also meet these conditions if your organisation exists, operates, pursues its objectives and incurs its expenditure solely and entirely in Australia.

Entitlements and responsibilities

Being exempt from income tax means your organisation:

  • does not need to lodge an income tax return (unless specifically asked to)
  • does not need to get confirmation of its exemption from us.

To work out if your organisation is exempt from income tax, you should:

Regardless of whether your organisation is income tax exempt, other taxes and concessions may apply to your organisation.

For more information about other taxes and concessions, refer to Tax basics for not-profit organisations (NAT 7966).

If your organisation does not meet all the requirements for exemption, you should check the other exemption categories in the Types of income tax exempt entities.

Organisations that are not exempt are taxable.

For more information about taxable organisations, refer to Mutuality and taxable income (NAT 73436).

Health organisations

Requirements checklist

Your organisation will be exempt from income tax, and can self-assess its exemption, if it meets all of the following requirements:

  • if it is a hospital
    • it is either a public hospital or a hospital that is carried on by a non-profit society or association
    • it is not a charity
    • it meets one of the three tests
    • it complies with all the substantive requirements in its governing rules
    • it applies its income and assets solely for the purpose for which it is established
  • if it is a benefits organisation
    • it is a non-profit organisation
    • it is not a charity.

Review your Entitlements and responsibilities and complete the Income tax status review worksheet for self-assessing non-profit organisations (NAT 74141).

Hospital

A hospital is an institution in which patients are received for continuous medical care and treatment for sickness, disease or injury. The provision of accommodation is integral to a hospital's care and treatment.

Clinics that mainly treat ambulatory patients who return to their homes after each visit are not hospitals. However, day surgeries that provide beds for patients to recover after surgery may be hospitals.

Homes to provide nursing care such as feeding, cleanliness and similar care are not hospitals. However, nursing homes for people suffering from illness are accepted as hospitals.

Hospices for the terminally ill will generally be hospitals. Minor outpatient and nursing care will not prevent an institution being a hospital.

Non-profit hospitals include those run by churches and religious orders.

Charity

If your organisation is a hospital, it might also be a charity.

For more information about charities, refer to Is your organisation a charity? (QC 16641).

If your hospital is also a charity, you cannot self-assess your income tax status. Your organisation must meet the requirements for charities to be income tax exempt.

For more information about registering with the ACNC and obtaining endorsement if your organisation is a charity, refer to Endorsement to access charity tax concessions (QC 16239).

Three tests

For a hospital that is not a charity to be exempt from income tax, it must pass one of the following tests:

  • physical presence in Australia test
  • DGR test
  • prescribed by law test.

If your organisation exists, operates and incurs its expenditure solely and entirely in Australia, you meet the physical presence in Australia test. You do not need to read anything further about the three tests.

If your organisation does not exist, operate and incur its expenditure solely and entirely in Australia, see the Explanation of the three tests to work out if you meet any of them.

Benefits organisation

A benefits organisation that is a private health insurer within the meaning of the Private Health Insurance Act 2007 can be exempt from income tax if it is not carried on for the profit or gain of its individual members.

Charity

If your organisation is a benefits organisation, it might also be a charity.

For more information about charities, refer to Is your organisation a charity? (QC 16641).

If your benefits organisation is also a charity, you cannot self-assess your income tax status. Your organisation must meet the requirements for charities to be income tax exempt.

For more information about registering with the ACNC and obtaining endorsement if your organisation is a charity, refer to Endorsement to access charity tax concessions (QC 16239).

Entitlements and responsibilities

Being exempt from income tax means your organisation:

  • does not need to lodge an income tax return (unless specifically asked to)
  • does not need to get confirmation of its exemption from us.

To work out if your organisation is exempt from income tax, you should:

Regardless of whether your organisation is income tax exempt, other taxes and concessions may apply to your organisation.

For more information about other taxes and concessions, refer to Tax basics for non-profit organisations (NAT 7966).

If your organisation does not meet all the requirements for exemption, you should check the other exemption categories in the Types of income tax exempt entities.

Organisations that are not exempt are taxable.

For more information about taxable organisations, refer to Mutuality and taxable income (NAT 73436).

Resource development organisations

Requirements checklist

Your organisation will be exempt from income tax, and can self-assess its exemption, if it meets all of the following requirements:

  • it is a non-profit society or association
  • it is not a charity
  • it is established for the purposes of promoting the development of one of the following
    • aviation
    • tourism
    • agricultural resources of Australia
    • aquacultural resources of Australia
    • fishing resources of Australia
    • horticultural resources of Australia
    • industrial resources of Australia
    • manufacturing resources of Australia
    • pastoral resources of Australia
    • viticultural resources of Australia
    • Australian information and communications technology resources.

Review your Entitlements and responsibilities and complete the Income tax status review worksheet for self-assessing non-profit organisations (NAT 74141).

Purposes

A range of resource development organisations can be exempt from income tax and can self-assess their exemption if they are not charities. The organisations must be non-profit. They must also be established for the purpose of promoting the development of:

  • aviation
  • tourism
  • agricultural resources of Australia
  • aquacultural resources of Australia
  • fishing resources of Australia
  • horticultural resources of Australia
  • industrial resources of Australia
  • manufacturing resources of Australia
  • pastoral resources of Australia
  • viticultural resources of Australia
  • Australian information and communication technology resources.

Aviation, tourism and the various resources have their ordinary meaning. Industrial resources include building, mining, quarrying, shipping and transport, but do not include business and commercial resources, such as insurance, and services, such as surveying. Pastoral resources include infrastructure, facilities, plant and equipment, personnel, knowledge, expertise and skills relating to the raising of stock on rural properties.

Promoting development can be by various means, including research, providing facilities, training, improving marketing methods, facilitating cooperation and similar activities.

Example: Resource development

A non-profit association's purpose is to run a tourism information booth. Its volunteers provide brochures and information to tourists and residents about the tourism opportunities in the district.

The association is promoting the development of tourism.

The main purpose of the society, association must be promoting the development of the relevant resources. To work out your organisation's main purpose you should look at its constituent documents, activities, use of funds and history. Any other purpose of the organisation must be incidental, ancillary or secondary to promoting development of the relevant resources.

If the organisation's main purpose is merely to provide services to its members, it will not be exempt. This is the case even if the services result in better use of resources by those members.

Example: Not resource development

A non-profit association is set up by a group of horticulture businesses. Its purpose is to buy supplies for the members in bulk and undertake joint marketing of their businesses.

The association is not promoting the development of horticultural resources.

Charity

If your organisation is a resource development organisation, it might also be a charity.

For more information about charities, refer to Is your organisation a charity? (QC 16641).

If your resource development organisation is also a charity, you cannot self-assess your income tax status. Your organisation must meet the requirements for charities to be income tax exempt.

For more information about registering with the ACNC and obtaining endorsement if your organisation is a charity, refer to Endorsement to access charity tax concessions (QC 16239).

Entitlements and responsibilities

Being exempt from income tax means your organisation:

  • does not need to lodge an income tax return (unless specifically asked to)
  • does not need to get confirmation of its exemption from us.

To work out if your organisation is exempt from income tax, you should:

Regardless of whether your organisation is income tax exempt, other taxes and concessions may apply to your organisation.

For more information about other taxes and concessions, refer to Tax basics for non-profit organisations (NAT 7966).

If your organisation does not meet all the requirements for exemption, you should check the other exemption categories in the Types of income tax exempt entities.

Organisations that are not exempt are taxable.

For more information about taxable organisations, refer to Mutuality and taxable income (NAT 73436).

Scientific organisations

Requirements checklist

Your organisation will be exempt from income tax, and can self-assess its exemption, if it meets all of the following requirements:

  • it is one of the following types of organisations
    • a scientific institution
    • a non-profit society, association or club established for the encouragement of science
    • a fund established to enable scientific research to be conducted by or with a public university or public hospital
  • it is not a charity
  • it complies with all the substantive requirements in its governing rules
  • it applies its income and assets solely for the purpose for which it is established
  • it meets further conditions for exemption.

Review your Entitlements and responsibilities and complete the Income tax status review worksheet for self-assessing non-profit organisations (NAT 74141).

Types of organisations

Three types of entity can be exempt from income tax:

  • scientific institutions
  • non-profit societies, associations or clubs established for the encouragement of science
  • funds established to enable scientific research to be conducted by or with a public university or public hospital.

For these purposes, science has its ordinary meaning. It is not limited to the physical sciences and includes the human and applied sciences.

Scientific institutions

Scientific institutions are set up and operated primarily to advance science. Common ways of advancing science include research, exploration and teaching. Disseminating information will often be involved.

Scientific institutions do not include:

  • organisations run for the profit of their individual owners or members
  • professional associations primarily run for the professional or business interests of their members.

Examples: Scientific institutions

Example 1

An institution is set up to hold conferences and meetings on an aspect of engineering. Any professional advantage the engineer members gain is only through the institution's advancement of science. The institution is a scientific institution. Example 2

A non-profit organisation is set up to carry out scientific research. All research is carried out under contract, with the client owning the intellectual property and the organisation bound not to disclose any information about the research. The organisation is not a scientific institution.
Scientific associations

The main purpose of the non-profit society, association or club must be encouragement of science. Recreational or hobby clubs do not qualify. The main purpose must not be promoting the professional or business interests of members.

Examples: Scientific associations

Example 1

A group of frog enthusiasts sets up a non-profit society to observe frogs in the district and record changes in their types, numbers and habits. The society is established for the encouragement of science. Example 2

A non-profit organisation is set up to advance the profession of surveying, raise professional standards and represent the profession to government and industry. The organisation is not a scientific association.
Scientific research funds

The organisation must only be a fund with sufficient links with public universities or public hospitals. The fund itself does not conduct the scientific research. The research is conducted by the university or hospital, or by other bodies in conjunction with the university or hospital. The fund may enable the research by various means, including providing money or facilities.

Example: Scientific research funds

A fund's sole object is to provide money to a public university for it to carry out medical research. The fund's investment income is given to the university under an agreement requiring it to be used only for medical research.

The fund can qualify for income tax exemption if it meets the other conditions.

Charity

If your organisation is a scientific organisation, it might also be a charity.

For more information about charities, refer to Is your organisation a charity? (QC 16641).

If your scientific organisation is also a charity, you cannot self-assess your income tax status. Your organisation must meet the requirements for charities to be income tax exempt.

For more information about registering with the ACNC and obtaining endorsement if your organisation is a charity, refer to Endorsement to access charity tax concessions (QC 16239).

Further conditions

Scientific institutions and scientific associations

For a scientific institution or scientific association that is not a charity to be exempt from income tax, it must pass one of the following tests:

  • physical presence in Australia test
  • DGR test
  • prescribed by law test.

If your organisation exists, operates and incurs its expenditure solely and entirely in Australia, you meet the physical presence in Australia test. You do not need to read anything further about the three tests.

If your organisation does not exist, operate and incur its expenditure solely and entirely in Australia, see the Explanation of the three tests to work out if you meet any of them.

Scientific research funds

For a scientific research fund that is not a charity to be exempt from income tax, the fund must be applied for the purposes for which it was established. If it is being applied for other purposes it will not be exempt.

The scientific research fund must also meet at least one of two conditions.

One condition is that the fund is a DGR. DGRs are entitled to receive income tax deductible gifts.

To meet the other condition, the fund must:

  • be established to enable the scientific research to be conducted principally in Australia by, or in conjunction with, the public university or public hospital
  • be located in Australia
  • incur its expenditure principally in Australia.

In working out if expenditure is principally incurred in Australia, the fund can disregard any distributions it makes of amounts it received as gifts or government grants.

Entitlements and responsibilities

Being exempt from income tax means your organisation:

  • does not need to lodge an income tax return (unless specifically asked to)
  • does not need to get confirmation of its exemption from us.

To work out if your organisation is exempt from income tax, you should:

Regardless of whether your organisation is income tax exempt, other taxes and concessions may apply to your organisation.

For more information about other taxes and concessions, refer to Tax basics for non-profit organisations (NAT 7966).

If your organisation does not meet all the requirements for exemption, you should check the other exemption categories in the Types of income tax exempt entities.

Organisations that are not exempt are taxable.

For more information about taxable organisations, refer to Mutuality and taxable income (NAT 73436).

Sporting organisations

Requirements checklist

Your organisation will be exempt from income tax, and can self-assess its exemption, if it meets all of the following requirements:

  • it is a non-profit society, association or club
  • it is established for the purpose of encouragement of either of the following
    • a game or sport
    • animal racing
  • it is not a charity
  • it meets one of the three tests
  • it complies with all the substantive requirements in its governing rules
  • it applies its income and assets solely for the purpose for which it is established.

Review your Entitlements and responsibilities and complete the worksheet in our guide Income tax exemption and sporting clubs (NAT 73773).

Purposes

The main purpose of the society, association or club must be encouragement of a game, sport or animal racing. To work out your organisation's main purpose, you should look at its constituent documents, activities, use of funds and history. Any other purpose of the organisation must be incidental, ancillary or secondary to encouragement of the game, sport or animal racing.

If your organisation's main purpose is providing social and recreational facilities and activities, it will not be exempt. This is the case even if your organisation also gives money to encourage games, sports or animal racing.

Example: Not for the encouragement of a game or sport

A non-profit club's main operations are providing dining, gaming and leisure facilities at its clubhouse. It gives a yearly grant to an associated rowing club, but is not involved in rowing itself. It is not exempt.
Game or sport

The terms 'game' and 'sport' are not defined and take their ordinary meaning. Games and sports extend to athletic games or sports (such as football and swimming) and non-athletic games (such as chess and bridge). They do not extend to stamp-collecting, keeping and showing pets, making model railways, maintaining vintage cars, and various social and recreational pursuits.

Encouragement of the games or sports extends to less direct means such as research or testing, developing referees and providing sporting facilities.

Example: For the encouragement of a game or sport

A non-profit association's purpose is to provide a sports ground for use by the local hockey, soccer and cricket clubs. The association will be exempt if it is not a charity and also meets the other requirements.

We have a specific guide to help non-profit clubs self-assess if their club is exempt from income tax as a society, association or club established for the encouragement of a game or sport, refer to Income tax exemption and sporting clubs (NAT 73773).

Animal racing

The income tax exemption includes horse racing, trotting and greyhound racing, and the racing of other animals.

Charity

If your organisation is a sporting organisation, it might also be a charity.

For more information about charities, refer to Is your organisation a charity? (QC 16641).

If your sporting organisation is also a charity, you cannot self-assess your income tax status. Your organisation must meet the requirements for charities to be income tax exempt.

For more information about registering with the ACNC and obtaining endorsement if your organisation is a charity, refer to Endorsement to access charity tax concessions (QC 16239).

Three tests

For a sporting organisation that is not a charity to be exempt from income tax, it must pass one of the following tests:

  • physical presence in Australia test
  • DGR test
  • prescribed by law test.

If your organisation exists, operates and incurs its expenditure solely and entirely in Australia, you meet the physical presence in Australia test. You do not need to read anything further about the three tests.

If your organisation does not exist, operate and incur its expenditure solely and entirely in Australia, see the Explanation of the three tests to work out if you meet any of them.

Entitlements and responsibilities

Being exempt from income tax means your organisation:

  • does not need to lodge an income tax return (unless specifically asked to)
  • does not need to get confirmation of its exemption from us.

To work out if your sporting organisation is exempt from income tax, you should:

  • complete the worksheet in our guide Income tax exemption and sporting clubs (NAT 73773)
  • use the worksheet to carry out a yearly review to check your organisation is still exempt - you should also do a review when there are major changes to your organisation's structure or activities.

Regardless of whether your organisation is income tax exempt, other taxes and concessions may apply to your organisation.

For more information about other taxes and concessions, refer to Tax basics for non-profit organisations (NAT 7966).

If your organisation does not meet all the requirements for exemption, you should check the other exemption categories in the Types of income tax exempt entities.

Organisations that are not exempt are taxable.

For more information about taxable organisations, refer to Mutuality and taxable income (NAT 73436).

Non-profit requirement

For many of the exempt entity types, your organisation must be non-profit.

See Table 2: Entities that can self-assess their income tax status to work out if your organisation is required to be non-profit.

A non-profit organisation is an organisation that is not operating for the profit or gain of its individual members, whether these gains would have been direct or indirect. This applies both while the organisation is operating and when it winds up.

Any profit made by the organisation goes back into the operation of the organisation to carry out its purposes and is not distributed to any of its members.

We accept an organisation as non-profit where its constituent or governing documents prevent it from distributing profits or assets for the benefit of particular people - both while it is operating and when it winds up. These documents should contain acceptable clauses showing the organisation's non-profit character. The income tax law does not prescribe the words that a non-profit organisation must have in its constituent documents. The following example clauses would be acceptable, if other clauses do not contradict them. The organisation's actions must be consistent with this requirement.

Example clauses

Non-profit clause

The assets and income of the organisation shall be applied solely in furtherance of its above-mentioned objects and no portion shall be distributed directly or indirectly to the members of the organisation except as bona fide compensation for services rendered or expenses incurred on behalf of the organisation.

Dissolution clause

In the event of the organisation being dissolved, the amount that remains after such dissolution and the satisfaction of all debts and liabilities shall be transferred to another organisation with similar purposes which is not carried on for the profit or gain of its individual members.

A non-profit organisation can still make a profit, but this profit must be used to carry out its purposes and must not be distributed to owners, members or other private people.

Example:

A society makes a $40,000 profit for the year. It uses this profit to reduce its debts and provide for its activities in the following year.

Explanation of the three tests

Some organisations must pass one of three tests to be exempt from income tax. The tests are the:

  • physical presence in Australia test
  • DGR test
  • prescribed by law test.

You do not need to read this section if your organisation is not required to meet one of the three tests.

See the Requirements for self-assessing income tax exempt entities to work out if your organisation must pass one of these tests.

Physical presence in Australia test

Your organisation will meet this test if it meets both of the following requirements:

  • your organisation has a physical presence in Australia
  • to the extent your organisation has a physical presence in Australia, it pursues its objectives and incurs its expenditure principally in Australia.

If your organisation does not meet these requirements, it may still meet the test - see Disregarded amounts.

Physical presence

An organisation has a physical presence in Australia if it is wholly in Australia, or it has a division, branch or sub-division in Australia.

It does not have a physical presence in Australia if it is present in Australia only through an agent, or it merely owns investment property in Australia.

Objectives and expenditure principally in Australia

If your organisation has a physical presence in Australia only, it must pursue its objectives and incur its expenditure principally in Australia.

Principally means mainly or chiefly. Less than 50% of expenditure is not considered principally.

The pursuit of objectives in Australia can include things done offshore if they are only a means of pursuing those objectives. For example, sending employees to an offshore conference to aid their efficiency for the Australian objectives will be pursuing objectives in Australia.

Example: Physical presence in Australia test

A community service association is physically present only in Australia, but it also sends materials to organisations overseas. As long as these activities and expenditure are not major, it will meet the physical presence in Australia test.

If your organisation has a physical presence in Australia as well as another country, you need to work out the extent to which your organisation is physically present in Australia. It is only to that extent that your organisation's purposes and expenditure must be principally in Australia.

Therefore, even if your organisation, when viewed as a whole, does not principally have its purposes and expenditure in Australia, it can still meet the physical presence in Australia test.

Examples: Physical presence test

Example 1

A sports club operates two centres, one in Australia and one in Papua New Guinea. Each centre operates separately, with general administration being done in Papua New Guinea.

If the Australian activities and expenditure are mainly for the Australian centre, it will meet the physical presence in Australia test.

Example 2

BNM Welfare is a community service organisation. It runs four centres, one in Australia and three in Malaysia. All funding comes from Australia and a similar amount is spent on each centre.

To the extent BNM Welfare has a physical presence in Australia, it is not principally pursuing its objectives and incurring its expenditure in Australia. It could only meet the physical presence in Australia test through the distribution of disregarded amounts.

Disregarded amounts

An organisation may still meet the physical presence in Australia test even if it does not pursue its purposes and incur its expenditure principally in Australia, to the extent it has a physical presence in Australia. This will depend on its distribution of disregarded amounts.

Disregarded amounts are amounts that the organisation receives as:

  • gifts, including testamentary gifts (that is, gifts made under a will)
  • proceeds from raffles, dinners, auctions, jumble sales and similar fundraising activities
  • government grants.

Distributions of these amounts are disregarded when working out where the organisation pursues its objectives and incurs its expenditure.

We assume any offshore distributions are made first from any disregarded amounts that are able to be distributed offshore. The assumption does not apply if a disregarded amount cannot be distributed offshore. For example, government grants made only for use in Australia, or gifts of land physically in Australia, are not assumed to be distributed offshore.

The effect of this assumption is that offshore distributions can be made, up to the total of these amounts, without affecting your entitlement to income tax exemption.

Example: Disregarded amounts

An Australian musical association also provides funding to a school in the Philippines for the purchase of musical instruments. The association hopes to promote and nurture musical education there. The distribution does not exceed its disregarded amounts. Because the disregarded amounts are assumed to pay for the Philippine activities, the association can still meet the physical presence in Australia test.

Does your organisation meet this test?

YES

Your organisation has passed one of the three tests. See the Governing rules condition.

NO

Read on.

Deductible gift recipient test

The deductible gift recipient test requires your organisation to be a deductible gift recipient (DGR). DGRs are entities donors can make income tax deductible gifts to. The income tax law determines which organisations and types of organisations can be DGRs.

To be a DGR, you must either:

  • be listed by name in the income tax law - includes organisations such as Amnesty International Australia and Landcare Australia
  • meet the requirements of a general DGR category set out in the income tax law - includes registered PBIs, public universities, public hospitals, school building funds, public libraries, registered cultural and environmental organisations, and ancillary funds.

DGRs that are not listed by name in the income tax law need to be endorsed by us.

Several general DGR categories require your organisation, if it is a charity, to be registered with the Australian Charities and Not-for-profits Commission (ACNC).

For more information about DGRs, refer to GiftPack (NAT 3132).

Your organisation will meet the DGR test if it either:

  • has been endorsed as a DGR in its own right and not merely for a fund or institution that it operates
  • is listed by name in the income tax law as a DGR.

Your organisation will not meet the DGR test if it is endorsed as a DGR only for a fund or institution that it operates.

Example: DGR

A community service organisation is endorsed as a DGR for a necessitous circumstances fund it operates. Gifts made to its necessitous circumstances fund could be tax deductible.

The community service organisation would not meet the DGR test because it is a DGR only for the necessitous circumstances fund.

Does your organisation meet this test?

YES

Your organisation has passed one of the three tests. See the Governing rules condition.

NO

Read on.

Prescribed by law test

Your organisation will meet this test if it is prescribed by name in the income tax regulations, and one of the following applies:

  • it is located outside Australia and is exempt from income tax in its country of residence
  • it has a physical presence in Australia but incurs its expenditure and pursues its objectives principally outside Australia.

The government decides which organisations will be prescribed by name in the income tax regulations. You can send applications for prescription to us and we will forward them to the government for consideration.

If your organisation is not listed by name in the income tax regulations for exemption purposes, it does not meet this test.

Does your organisation meet this test?

YES

Your organisation has passed one of the three tests. See the Governing rules condition.

NO

See below.

If your organisation does not meet the requirements of any of the types of exempt entities or if you are unsure if your organisation meets the requirements, see Self-assessment outcomes.

Governing rules condition

You do not need to read this section if your organisation is not required to meet this condition.

See the Requirements for self-assessing income tax exempt entities to work out if your organisation must meet this condition.

Your organisation will meet this condition if it complies with all the substantive requirements in its governing rules.

This means that an organisation must operate only in a manner consistent with the rules of core importance to its operation, including those related to its object and purpose and those relating to its non-profit status.

Minor procedural irregularities, such as an absence of a quorum at a meeting or missing a required lodgment date, will not prevent an organisation from meeting this condition for income tax exemption.

Does your organisation meet this condition? If your organisation is new, does it intend to meet this condition?

YES

Your organisation has met the Governing rules condition. See the Income and assets condition.

NO

See below.

If your organisation does not meet the requirements of any of the types of exempt entities or if you are unsure if your organisation meets the requirements, see Self-assessment outcomes.

Income and assets condition

You do not need to read this section if your organisation is not required to meet this condition.

See the Requirements for self-assessing income tax exempt entities to work out if your organisation must meet this condition.

Your organisation will meet this condition if it applies its income and assets solely for the purpose for which it is established.

Does your organisation meet this condition? If your organisation is new, does it intend to meet this condition? Does it also meet all the other requirements of an exempt entity type? For example, is it non-profit (where applicable), is it not a charity, does it meet the exempt entity type description and all relevant conditions?

YES

Your organisation is income tax exempt. See Self-assessment outcomes to find out what this means for your organisation.

NO

See below.

If your organisation does not meet the requirements of any of the types of exempt entities or if you are unsure if your organisation meets the requirements, see Self-assessment outcomes.

Income tax status review worksheet for self-assessing non-profit organisations

We have provided the Income tax status review worksheet for self-assessing non-profit organisations (NAT 74141) to help you work out your organisation's income tax status as either income tax exempt or taxable.

You should use the worksheet when you want to check your organisation's income tax status. We recommend non-profit organisations review their status:

  • on annual basis
  • when there is a major change in their structure or activities.

Once you have completed the worksheet, submit it to your Board or Committee for approval. Keep the completed and approved worksheet with your organisation's other records - it will show why and how you worked out your organisation's income tax status and it will help future office bearers.

If your organisation is a sporting organisation, you should use the worksheet in Income tax exemption and sporting clubs (NAT 73773) instead.

More information

For more information about income tax exemption, refer to Income tax.

We have a range of information and services specifically for non-profit organisations. To find out more, refer to Essential tax information for your non-profit organisation.

Our commitment to you

We are committed to providing you with accurate, consistent and clear information to help you understand your rights and entitlements and meet your obligations.

If you follow our information and it turns out to be incorrect, or it is misleading and you make a mistake as a result, we will take that into account when determining what action, if any, we should take.

Some of the information on this website applies to a specific financial year. This is clearly marked. Make sure you have the information for the right year before making decisions based on that information.

If you feel that our information does not fully cover your circumstances, or you are unsure how it applies to you, contact us or seek professional advice.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).

ATO references:
NO NAT 7967

Income Tax Guide for Non-Profit Organisations (Current to 31 July 2015)
  Date: Version:
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