Charities and income tax exemption
Registered charities are a type of income tax exempt entity. NFPs with only charitable purposes that meet the legal definition of a charity must be registered with the ACNC and be endorsed by the ATO to be income tax exempt.
To consider if your NFP has only charitable purposes and meets the legal definition of a charity, you can use the guidance at acnc.gov.au/selfassessingExternal Link.
NFPs with only charitable purposes that choose not to register with the ACNC, are not eligible to self-assess as income tax exempt, and will not be exempt from income tax. They are taxable and may be required to lodge an annual income tax return.
Self-assessing eligibility to income tax exemption
The other type of exempt entity is an organisation that meets the requirements to self-assess as income tax exempt.
There are 8 categories of income tax exempt entities that can self-assess eligibility for income tax exemption, outlined in Division 50 of the Income Tax Assessment Act 1997 (ITAA 1997). An NFP can self-assess income tax exemption if it is not a charity and meets the requirements of one of the following categories:
- Community service organisations
- Cultural organisations
- Educational organisations
- Health organisations
- Employment organisations
- Resource development organisations
- Scientific organisations
- Sporting organisations
Reporting requirements to self-assess income tax exemption
From 1 July 2023, non-charitable NFPs with an active Australian business number (ABN) self-assessing as income tax exempt need to lodge an annual NFP self-review return.
The first NFP self-review return must be lodged is for the 2023–24 income year and is due between 1 July and 31 October 2024.
Following this, a new return must be lodged for each subsequent income year. If a return is not lodged, NFPs may become ineligible for an income tax exemption and penalties may apply.