With the Australian Tax Office's (ATO) extended deadline upon us, not-for-profits (NFPs) that have been self-assessing as income tax exempt will be required to prepare and lodge an annual self-review return with the ATO by 31 March 2025. Non-charitable NFPs are now required to lodge an annual self-review return with the ATO to confirm their eligibility to self-assess as income tax exempt. These new reporting obligations will impact all NFPs with an active ABN that have been, or intend to, self-assess as income tax exempt.
With the introduction of these new reporting requirements, it is expected that the ATO will closely examine the self-assessment of income tax exemption by non-charitable NFPs. There will be material consequences for organisations that have previously self-assessed as income tax exempt where the ATO considers they do not meet the eligibility criteria. If the ATO determines that an organisation is not eligible for the income tax exemption, it will be liable for income tax for the 2023-24 income year, which could result in significant financial liabilities for the organisations involved.
Key changes to the income tax exemption of NFP organisations
New reporting requirements
In a move which it stated is intended to enhance transparency and integrity, the ATO has introduced new reporting requirements for non-charitable NFPs. Previously, these organisations could self-assess their eligibility for an income tax exemption without any formal reporting. However, from the 2023-24 income year onwards, non-charitable NFPs with an active ABN must lodge an annual self-review return with the ATO by 31 March 2025 to confirm their income tax exemption status. The ATO wants to ensure that only organisations that it considers are eligible can benefit from the income tax exemption.
The NFPs impacted by these new reporting standards are the non-charitable community, cultural, educational, employment, health, resource development, scientific, and sporting organisations who currently self assess on the basis they meet the criteria for those categories in Division 50 of the Income Tax Assessment Act 1997 (Cth).
Following the 2024 income year, non-charitable NFPs that wish to access the income tax exemption on an ongoing basis will be required to lodge annual self-review returns with the ATO between 1 July and 31 October each year (or later, if an approved substituted accounting period applies). Where an entity lodges a self-review return for the 2024 income year, we understand that it should only be required to confirm or update information on a pre-populated return.
Charities registered with the Australian Charities and Not-for-profits Commission (ACNC) will not be affected by these changes, as they are already subject to different reporting requirements.
NFPs with charitable purposes
Where a NFP has charitable purposes, and otherwise meets the legal definition of a charity under the Charities Act 2013 (Cth) (Charities Act), it will only be eligible for income tax exemption where it registers with the ACNC as a charity and is endorsed by the ATO for income tax exemption. Before a NFP will be eligible for registration as a charity with the ACNC, it will need to meet the legal definition of a charity under the Charities Act and satisfy itself that it has charitable purposes. To assist with this process, particularly where an organisation is unsure whether it has charitable purposes, the ATO has recommend completing and lodging the 'NFP self-review return' by responding 'yes’ or ‘unsure’ to the charitable purposes question. Upon receipt of this return, the ATO will work with the organisation and the ACNC to confirm whether ACNC registration is appropriate for the entity and, if so, provide assistance with progressing the income tax exemption endorsement once registered as a charity with the ACNC.
Who can apply to be registered as a charity with the ACNC?
To register as a charity with the ACNC, an organisation must:
- have an ABN;
- operate as a not-for-profit entity;
- have charitable purposes that serve the public benefit;
- adhere to the ACNC Governance Standards;
- comply with the ACNC External Conduct Standards if operating overseas;
- not have any disqualifying purposes (which are engaging in, or promoting activities that are unlawful or contrary to public policy; and promoting or opposing a political party or candidate for political office); and
- not be an individual, political party or government entity.
Support available
The ATO has encouraged NFPs to seek help if they do not understand the new reporting requirements. Organisations seeking help with reassessing their income tax exemption status can also contact MinterEllison for assistance.
Find out whether your organisation is required to lodge a NFP self-review return and find out about entities that are eligible for income tax exemption here:
For further insights, don't miss our overview of the Federal budget highlights for 2025/26.
To discuss how these changes to the NFP self-review returns will impact your organisation, please contact our team.
