What is a governing document?
Governing documents are the formal documents that set out your organisation's:
- purpose
- NFP character
- requirements for how long it is governed, operates and makes decisions.
Governing documents can also be called:
- rules or articles of association
- constitutions
- rule books
- deeds of trust.
NFP organisations seeking access to tax concessions, either by ATO endorsement or self-assessment, must have appropriate clauses in governing documents to reflect their NFP character.
It's important that your NFP's administrators, both current and incoming, know where your NFP keeps its governing documents so they can access them when needed.
Governing document requirements
To demonstrate to us that it operates on an NFP basis, an NFP is required to have clauses in its governing documents that prohibit distribution of income or assets for the benefit of specific people – both while it operates and when it winds up.
The organisation needs to have sufficient controls in place to ensure members and other private persons do not receive the income, property or assets of the organisation (other than as reimbursement for services they have provided or for expenses incurred on behalf of the organisation).
Example: acceptable clauses for governing documents
Not-for-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.'
End of example
When should you review your governing documents?
To confirm your organisation is operating for purpose, you should review its governing documents:
- annually, and
- whenever there is a major change to structure or activities.
Most income tax exempt entities:
- are required to meet the governing rules condition
- should review their governing documents to confirm they are compliant with all substantive requirements.
You may need to update your NFP’s governing documents if:
- its purposes have changed since being established
- they don’t have appropriate clauses that prohibit the distribution of income or assets to members.
An annual general meeting (AGM) can be the ideal time to review your NFP’s governing documents, so any amendments can be noted in the AGM minutes.
How to update your governing documents
Your state or territory government may have specific requirements when updating your governing documents. For further information, refer to How to make changes to your rules or constitutionExternal Link.
Self-assessing as income tax exempt
An NFP self-assessing its eligibility for income tax exemption must not distribute income or assets to members.
This must be demonstrated by including clauses in the NFP's governing documents that prohibit the distribution of income or assets to members both:
- while it operates, and
- when it winds up.
NFP self-review return requirement
Non-charitable NFPs with an active Australian business number (ABN) need to lodge an annual NFP self-review return to notify us of their eligibility to self-assess as income tax exempt.
When completing the NFP self-review return, NFPs are required to answer 'yes' or 'no' to the question: 'Does the organisation have and follow clauses in its governing documents that prohibit the distribution of income or assets to members while it is operating and winding up?'
This is an important requirement that must be met to self-assess as income tax exempt.
NFPs must review their governing documents before completing the self-review return, to ensure they are answering this question accurately.
If an NFP's governing documents do not have this clause, the governing documents must be updated to include the clause.
If your NFP doesn’t have and follow these clauses in its governing documents, it can still self-assess as income tax exempt for the 2023–24 income year provided it has not distributed any assets or income to members.
As a transitional arrangement, we've provided NFPs up to 30 June 2025 to update their governing documents. Failure to do so will mean they cannot self-assess as income tax exempt from 1 July 2024, for the 2024–25 income year. They will be taxable organisations and required to lodge an income tax return or non-lodgment advice.