Since 1 July 2023, approximately 155,000 not-for-profits (NFPs) must comply with compliance changes regarding NFP tax returns .
If you’re a not-for-profit (NFP) organisation, understanding whether your entity qualifies for income tax exemption is crucial. This guide outlines the criteria and processes involved to help you navigate this complex aspect of not-for-profit accounting.
Understanding the ATO’s Not-for-Profit Tax Exemption
Charities and the ACNC
NFPs that serve purely charitable purposes and meet the legal definition of a charity must be registered with the Australian Charities and Not-for-profits Commission (ACNC) and endorsed by the ATO to gain income tax exemption. This is a mandatory step for charitable organisations wishing to benefit from tax-exempt status.
Self-Assessing Eligibility for Non-Charity NFPs
Other non-charitable NFPs may self-assess their eligibility for income tax exemption without needing ACNC registration or ATO endorsement. The types of organisations that can self-assess include:
- Community Service Organisations: Entities established for community service purposes.
- Cultural Organisations: Entities promoting art, literature, music, or musical purposes.
- Educational Organisations: Public educational institutions open to the public or sections of it, focusing solely on providing education.
- Employment Organisations: Registered trade unions and employee or employer associations.
- Health Organisations: Specific hospitals and NFP private health insurers.
- Resource Development Organisations: Entities promoting development in fields such as aviation, tourism, agriculture, fishing, manufacturing, and ICT.
- Scientific Organisations: Scientific institutions, associations, or research funds.
- Sporting Organisations: Entities encouraging sports or animal racing.
Determining Self-Assessment Eligibility
To self-assess, some of the NFPs above must pass at least one of the following tests:
- Physical Presence in Australia: The organisation must be physically present in Australia.
- DGR Test: The organisation must be a Deductible Gift Recipient (DGR), allowing it to receive income tax-deductible gifts .
- Prescribed by Laws Test: The organisation must be prescribed by name in income tax regulations, located outside Australia, and exempt from income tax in its country of residence.
Talk to a Not-for-Profit Accounting Expert
Understanding your NFP’s eligibility for income tax exemption through ATO not-for-profit guidelines and self-assessment criteria is vital. For NFP directors and finance teams, knowing these requirements helps in strategising the organisation's financial and tax planning and ongoing compliance.
If you have any questions regarding tax exemptions for not-for-profits, consult with our not-for-profit accounting and multidisciplinary for-purpose industry experts to ensure all aspects of your NFP’s tax obligations are appropriately managed.
