On this page
- Income tax treatment of not-for-profit organisations
- Income tax exemption for charities
- Self-assessing income tax exemption
- Taxable not-for-profit organisations
- Common questions about income tax exemption
Income tax treatment of not-for-profit organisations
A not-for-profit organisation must generally pay income tax on its taxable income unless it qualifies for an exemption.
A not-for-profit organisation may be income tax exempt if it is:
- a charity registered with the Australian Charities and Not-for-profits Commission (ACNC) and endorsed by the Australian Taxation Office (ATO) as income tax exempt, or
- a non-charitable not-for-profit organisation that falls within a category specified in the tax law and satisfies the requirements to self-assess as income tax exempt
A not-for-profit organisation that does not qualify for income tax exemption may be taxable.
Note
The income tax rules for not-for-profit organisations can be complex. Your organisation should seek legal or tax advice about its eligibility for income tax exemption and its reporting obligations.
Effect of income tax exemption
An organisation that is income tax exempt generally does not have to:
- pay income tax, or
- lodge an income tax return, unless the ATO specifically requires it to do so
A non-charitable not-for-profit organisation with an active Australian Business Number (ABN) that self-assesses as income tax exempt must lodge an annual NFP self-review return. The NFP self-review return is different from an income tax return.
For information about the NFP self-review return, see our webpage on Income tax reporting requirements.
Income tax exemption applies to the organisation. It does not exempt the organisation’s employees from income tax.
An income tax exempt organisation may still have other tax and superannuation obligations. For example, an organisation with employees may need to:
- withhold pay as you go (PAYG) amounts from salaries, wages and certain other payments
- comply with fringe benefits tax obligations, and
- meet superannuation guarantee obligations
An income tax exempt organisation may also have goods and services tax obligations and may be subject to state or territory taxes.
For more guidance, see our webpages on fringe benefits concessions, Goods and Services Tax (GST) and state and territory taxes.
Income tax exemption for charities
A charity must be registered with the ACNC and endorsed by the ATO to access income tax exemption.
An organisation that meets the legal definition of a charity cannot self-assess as income tax exempt. If it does not register with the ACNC and obtain ATO endorsement, it will not be entitled to income tax exemption.
An organisation applying to register as a charity with the ACNC can also apply for charity tax concessions, including income tax exemption, as part of its registration application.
For more guidance about the eligibility requirements and application process, see our fact sheet Applying for TCC endorsement.
Self-assessing income tax exemption
A non-charitable not-for-profit organisation may be able to self-assess as income tax exempt if it:
- falls within one of the categories specified in the tax law
- satisfies the requirements for that category
- satisfies any additional conditions that apply, and
- continues to meet the requirements for income tax exemption
A non-charitable not-for-profit organisation does not need to register with the ACNC or obtain ATO endorsement to self-assess as income tax exempt.
Caution
An organisation that meets the legal definition of a charity cannot self-assess as income tax exempt, even if it appears to fit within one of the self-assessment categories.
Some organisations may not describe themselves as charities even though they meet the legal definition. If your organisation may have charitable purposes, consider seeking legal or tax advice about whether it should register with the ACNC.
Self-assessment categories
There are eight categories of non-charitable not-for-profit organisations that may be able to self-assess as income tax exempt:
- community service organisations
- cultural organisations
- educational organisations
- scientific organisations
- sporting organisations
- resource development organisations
- health organisations, and
- employment organisations
An organisation must satisfy the requirements for the relevant category. Its name or its own description of its activities does not determine whether it is eligible.
Additional eligibility conditions
Falling within a self-assessment category may not be enough.
Depending on the category, an organisation may also need to:
- satisfy one of three statutory tests
- comply with all substantive requirements in its governing rules, and
- apply its income and assets solely for the purpose for which it was established
Statutory tests
Depending on the applicable exemption category, an organisation may need to satisfy one of the following:
- the physical presence in Australia test
- the deductible gift recipient test, or
- the prescribed by law test
For detailed guidance, see the ATO's webpage on the explanation of the tests.
Physical presence in Australia test
Broadly, this test considers whether the organisation:
- has a physical presence in Australia, and
- to the extent that it has a physical presence in Australia, pursues its objectives and incurs its expenditure principally in Australia
An organisation may have a physical presence in Australia if it has an office, employees or volunteers in Australia. This may include a division, branch or subdivision operating in Australia.
Special rules apply when determining where an organisation pursues its objectives and incurs its expenditure. Certain amounts may be disregarded, including particular gifts, fundraising receipts and government grants.
An organisation with activities outside Australia should obtain advice about how this test applies to its circumstances.
Deductible gift recipient test
This test may be satisfied if the organisation is a deductible gift recipient in its own right.
It is not sufficient that the organisation operates a fund, authority or institution that has DGR endorsement.
For more guidance, see our webpage on DGR status.
Prescribed by law test
This test may apply if an organisation:
- is prescribed by name in the income tax regulations
- is located outside Australia, and
- is exempt from income tax in its country of residence
The Australian Government determines which organisations are prescribed.
Governing rules
An organisation that is required to satisfy the governing rules condition must comply with all the substantive requirements in its governing rules.
Its governing documents should demonstrate its not-for-profit character. They should contain appropriate provisions that prevent the distribution of income or assets for the benefit of members or other private persons:
- while the organisation is operating, and
- when it winds up
The organisation must also follow its governing rules in practice.
For more guidance, see the ATO guidance on NFP governing documents and our webpage on managing an organisation’s rules or constitution.
Use of income and assets
Where the income and assets condition applies, an organisation must apply its income and assets solely for the purpose for which it was established.
The organisation should consider:
- the objects or purposes set out in its governing documents
- the activities it carries out, and
- how it uses its income and assets
Activities and expenditure should support the organisation’s stated purpose.
Reviewing eligibility
An organisation should review its eligibility for income tax exemption regularly and when its circumstances change.
A non-charitable not-for-profit organisation with an active ABN that self-assesses as income tax exempt must lodge an annual NFP self-review return.
For guidance about reviewing income tax status, due dates, lodgement and late returns, see our webpage on Income tax reporting requirements.
Caution
The ATO may review an organisation’s self-assessment. If the ATO determines that the organisation was not entitled to self-assess as income tax exempt, the organisation may be liable for unpaid tax, interest and penalties.
An organisation that is uncertain about its income tax status can seek legal or tax advice or consider applying to the ATO for a private ruling.
Taxable not-for-profit organisations
A not-for-profit organisation is taxable if it is neither:
- a registered charity endorsed by the ATO as income tax exempt, nor
- eligible to self-assess as income tax exempt
A taxable not-for-profit organisation may need to lodge an income tax return and pay income tax on its taxable income. Its obligations depend on factors including its legal structure and taxable income.
A taxable not-for-profit company with taxable income of:
- $416 or less may notify the ATO that lodgement is not necessary, unless the ATO requires it to lodge a company tax return, or
- more than $416 must lodge a company tax return
The $416 amount is not an income tax exemption threshold. It relates to whether a taxable not-for-profit company must lodge a company tax return.
Special income tax rates may apply to taxable not-for-profit companies. Because rates and eligibility requirements may change, organisations should check current ATO guidance.
The mutuality principle may affect how some membership organisations calculate their taxable income. The mutuality principle is separate from income tax exemption.
For more guidance, see the ATO’s information about:
Note
Your organisation should seek professional legal or tax advice about its income tax and lodgement obligations.
Common questions about income tax exemption
Do not-for-profits pay income tax?
It depends on the organisation. Some not-for-profit organisations are exempt from income tax. Others must pay income tax on their taxable income. An organisation is not automatically income tax exempt simply because it operates on a not-for-profit basis.
For more guidance, see Income tax exemption for charities, Self-assessing income tax exemption and Taxable not-for-profit organisations above.
Which organisations are income tax exempt?
Income tax exemption may be available to:
- charities registered with the ACNC and endorsed by the ATO as income tax exempt, and
- non-charitable not-for-profit organisations that fall within a category specified in the tax law and satisfy the applicable self-assessment requirements
Different eligibility requirements apply to each category.
For more guidance, see Self-assessment categories and Additional eligibility conditions above.
How do you self-assess income tax exemption?
A non-charitable not-for-profit organisation must determine whether it falls within a self-assessment category and satisfies all the requirements applying to that category.
Depending on the category, these requirements may include a statutory test, the governing rules condition and the income and assets condition.
An organisation with an active ABN that self-assesses as income tax exempt must also lodge an annual NFP self-review return.
For more guidance, see Self-assessing income tax exemption above and our webpage on Income tax reporting requirements.
Does exemption require ACNC registration?
It depends on whether the organisation is a charity.
A charity must be registered with the ACNC and endorsed by the ATO to be income tax exempt. A non-charitable not-for-profit organisation does not need to register with the ACNC or obtain ATO endorsement if it is eligible to self-assess as income tax exempt.
For more guidance, see Income tax exemption for charities and Self-assessing income tax exemption above.
The content on this webpage was last updated in September 2026 and is not legal advice. See full disclaimer and copyright notice.
