The Australian Taxation Office (ATO) is reminding not-for-profit (NFP) organisations of the approaching deadline for lodging their NFP self-review return. Non-charitable NFPs that self-assess as income tax exempt for the 2023-24 income year must complete and submit their return by 31 March 2025.
Eligibility for Income Tax Exemption
Non-charitable NFPs may qualify for an income tax exemption if their core activities align with one of the eight categories specified in Division 50 of the Income Tax Assessment Act 1997 (ITAA 1997). Although the eligibility criteria for this exemption remain unchanged, the requirement to submit the NFP self-review return is a new compliance obligation. This marks the first instance in which NFPs must formally notify the ATO of their eligibility.
Maintaining Governing Documents
To maintain eligibility for income tax exemption, NFPs must ensure that their governing documents (such as constitutions, rule books, deeds of trust, or articles of association) clearly reflect their NFP status. These documents must explicitly state that the organisation cannot distribute profits or assets to members or private individuals, except in cases of legitimate reimbursements for services rendered or expenses incurred on behalf of the organisation.
If an NFP’s current governing documents do not contain these provisions, the organisation has until 30 June 2025 to update them accordingly. Despite this grace period, NFPs may still self-assess as income tax exempt for the 2024 income year, provided they have not distributed any income or assets to members.
Addressing Common Myths and Misconceptions
The ATO has updated its website to clarify common misunderstandings regarding NFP tax exemption. Here are some key points:
- Not all NFPs are income tax exempt – Only registered charities endorsed by the ATO and non-charitable NFPs that meet the self-assessment criteria qualify for an exemption.
- Multiple ways to lodge the self-review return – NFPs have three options for submission: via the ATO online portal, the ATO phone service, or through a registered tax agent who can lodge on their behalf.
- Only authorised individuals can lodge the return online – The NFP self-review return can only be lodged by individuals who have been granted authorised access in the ATO’s Online Services system.
- Uncertainty about charitable status still requires lodgement – If an NFP is unsure whether it qualifies as a charity, it must still complete the self-review return and select either ‘Yes’ or ‘Unsure’ when responding to the charitable purposes question.
Further Guidance on Exempt Categories
The ATO has also provided updated information on specific categories of tax-exempt NFPs, including those involved in education, employment, and resource development. NFPs operating in these sectors should review the ATO’s latest guidance to ensure compliance with the relevant exemption requirements.
For more details, NFPs are encouraged to seek advice from tax practitioners for the latest updates regarding tax exemption criteria and compliance obligations.
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By Zoe Ma @ Pitt Martin Tax