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Under the Income Tax Assessment Act 1997 (Cth) a not-for-profit organisation must pay tax on its 'taxable income', unless it qualifies for an exemption.
This page provides an overview of this area, however, tax law is complex and often changes. Your organisation should seek assistance from a lawyer or tax accountant if required.
What would an income tax exemption mean for our community organisation?
If your organisation qualifies for income tax exemption, then it effectively will not have to:
- pay any income tax, or
- lodge tax returns. However, in some limited cases the Australian Taxation Office (ATO) may specifically request that your organisation lodge tax returns.
The exemption does not relate to the income tax that any employees of the organisation are required to pay. If your community organisation has employees, it will still have a legal obligation (under separate provisions of tax legislation) to collect Pay As You Go (PAYG) withholding amounts and comply with any other tax requirements (such as fringe benefits tax (FBT) and superannuation, although an endorsement for a FBT rebate may be available in addition to an income tax exemption). GST may also still be payable as it is not an income tax (see our webpage on GST).
Which not-for-profit organisations qualify for an exemption?
Exemptions apply to:
- charities registered with the Australian Charities and Not-for-Profits Commission (ACNC) and endorsed by the ATO for charity tax concessions
- community service organisations, and
- other categories of organisations specified in the Income Tax Assessment Act 1997 (Cth), including:
- employer/employee associations and trade unions
- public hospitals, not-for-profit hospitals and not-for-profit medical and hospital benefit entities
- not-for-profit societies or associations established to promote the development of primary and secondary resources and tourism, and
- societies, associations or clubs established for the encouragement of animal racing, art, a game or sport, literature, or music, or a not-for-profit society, association or club established for musical purposes
Does our organisation 'fit' into one of the categories for exemption?
Charities (including public benevolent institutions and health promotion charities) must be registered as a charity with the ACNC, and then endorsed by the ATO to access tax concessions to be income tax exempt. Organisations that are entitled to register with the ACNC as charities are not entitled to access tax concessions under any of the other categories for exemption unless they are so registered.
If an organisation is applying to be registered as a charity with the ACNC for the first time, it can also apply for tax concessions at the same time (the ACNC will pass the application on to the ATO). If an organisation is already registered with the ACNC, it can apply for tax concessions directly to the ATO.
For more information about the requirements and processes to be endorsed for tax concessions, see our fact sheet on Applying for TCC endorsement on the Fringe Benefits Concessions page.
Community service organisations
If your organisation is not a charity, then you can self-assess whether it is an organisation within one of the categories above that is entitled to an income tax exemption. You don't need to register with the ACNC or be endorsed by the ATO to be exempt from income tax. You will need to check the requirements for the relevant categories above to determine if your organisation meets all the requirements.
Community service organisations are not-for-profit organisations that promote, provide or carry out activities, facilities or projects for the benefit or welfare of the community, or any of their members who have a particular need by reason of youth, age, infirmity or disablement, poverty or social or economic circumstances.
Community service organisations include associations of Justices of the Peace, associations of play groups, traditional service clubs, community service clubs, and pensioner or senior citizen associations.
Groups focused on lobbying or with political purposes, or that only seek to advance the common interests of their members (for example, a social club for newcomers to a particular residential area) are not community service organisations.
Refer to the ATO’s webpage on community services organisations to ensure that your organisation meets all of the requirements of the community service organisation category.
Other categories in the Income Tax Assessment Act
While the other categories listed above sound broad, there are quite specific definitions for each. The ATO has information about these categories and self-assessment on its website and you may wish to seek professional advice to confirm that your organisation qualifies for a particular category. Links to relevant web pages listed below.
Your organisation can be reviewed by the ATO, and if the ATO does not agree with your assessment, you may need to pay back tax for the period that you wrongly self-assessed. Interest and penalties may also apply. If you are uncertain about the status of your organisation, you can seek a private binding ruling from the ATO on your organisation’s tax exempt status.
From 1 July 2023, the ATO will require income tax exempt not-for-profits with an active Australian Business Number (ABN) to submit online annual self-review forms with the information they ordinarily use to self-assess their eligibility for the exemption.
What if our organisation doesn't qualify for an income tax exemption?
Your organisation will be required to pay tax on its 'taxable income', and lodge income tax returns, unless it has taxable income of less than $416. If your organisation is a membership organisation such as a club then refer to the ATO’s resource ‘Mutuality and taxable income’ to work out the taxable income. Broadly, the taxable income of a club, society or association is calculated in the same way as a company for tax purposes. Organisations should generally use the 'company' tax return to lodge a return with the ATO. For more information refer to the ATO's website section for not-for-profit organisations.
Your organisation should seek professional advice on its income tax liability. Your not-for-profit organisation may not have to pay tax on all its income as some income items may not be included in certain circumstances.
Australian Charities and Not-for-Profit Commission (ACNC)
Australian Tax Office (ATO)
- Endorsement for charity tax concessions
This page of the ATO's website provides an overview of charity tax concession endorsement.
Apply for charity tax concessions endorsement
This page of the ATO's website contains the application form for endorsement as a TCC as well as an information kit for filling in the form. Note that your organisation may need advice and assistance from a lawyer or accountant to help with your application for TCC status.
- Not-for-profit self-review
This webpage has worksheets to help you check that your not-for-profit organisation has good governance and is meeting its tax and super obligations.