Tax-Free Triumph for Not-for-Profits: Understanding Self-Assessment for Tax Exemption

How to Secure and Maintain Tax Exemption Status for Not-for-Profit Organisations in Australia

For Australian not-for-profit organisations (NFPs), securing tax exemption status is more than a formality, it’s a vital strategy for preserving resources and supporting mission-driven outcomes.

The Australian Taxation Office (ATO) allows eligible NFPs to self-assess their entitlement to tax exemption. This guide explains how to correctly manage that process and avoid the common mistakes that put your exemption at risk.

What is Self-Assessment?

Self-assessment is the process by which NFPs determine their own eligibility for income tax exemption using ATO criteria—without immediate ATO approval.

It allows NFPs to take responsibility for their tax position, ensure proactive compliance, and access financial relief by lawfully avoiding income tax liabilities.

Why Tax Exemption Matters for NFPs

• Improved Financial Capacity: Being tax-exempt means more funds are available for core services, community programs, or charitable initiatives.

• Regulatory Compliance: Regular self-assessment minimises the risk of ATO audits, penalties, or revocation of exemption status.

Who Qualifies for Tax Exemption?

To self-assess as tax-exempt, an NFP must meet all of the following ATO requirements:

• Purpose: The organisation must exist solely for not-for-profit purposes—such as community service, charity, health, education, or religion.

• Structure: Must operate as a legitimate not-for-profit entity (e.g. incorporated association, company limited by guarantee).

• Use of Income & Assets: All income and assets must be applied exclusively to the organisation’s not-for-profit activities.

Tip: Ensure your constitution or governing documents clearly outline your not-for-profit purpose.

What Income is Tax-Exempt?

If your organisation qualifies for tax exemption, these types of income are usually not taxed:

• Donations & Gifts: Contributions made voluntarily, without material benefit in return.

• Government Grants: Grants aligned with your mission may be exempt, provided they are not connected to commercial activity.

• Membership Fees: If used to support the organisation’s objectives.

• Fundraising Proceeds: Income from events like charity dinners, raffles, and auctions.

Examples

• Charitable Donations: $10,000 gifted by a donor to support mental health programs.

• Educational Grants: Funding for a local tutoring initiative from the Department of Education.

• Event Proceeds: Revenue from a fundraising walkathon.

Documentation NFPs Must Keep

To prove your tax-exempt status, keep the following up-to-date:

• Financial Reports: Profit and loss statements, balance sheets.

• Receipts & Invoices: Particularly for grants, donations, and expenses.

• Board Meeting Minutes: Evidence of decisions aligned with not-for-profit objectives.

• Governing Rules: Constitution or rules that show income is applied to NFP purposes only.

Reporting Requirements

Even if tax-exempt, your organisation may need to:

• Submit an Annual Information Statement (AIS) to the Australian Charities and Not-for-profits Commission (ACNC).

• Register for GST or lodge BAS if running a business or if turnover exceeds $75,000.

• Notify the ATO of changes that affect your eligibility (e.g. business structure or purpose).

How to Conduct a Tax Exemption Self-Assessment

1. Review ATO Eligibility Criteria

2. Examine Your Organisation’s Purpose & Structure

3. Gather Supporting Documents

4. Use the ATO’s Self-Assessment Tool

5. Determine Your Status

6. Submit an Application (if required)

If you're unsure or your situation is complex, seek professional advice before claiming exemption.

Mistakes That Risk Your Exemption

• Using income for personal gain or unrelated activities

• Failing to document how funds are spent

• Ignoring changes to tax laws or ATO updates

• Letting compliance records lapse

Staying Compliant: Pro Tips

• Conduct annual reviews of your eligibility

• Attend training sessions on NFP compliance

• Engage an accountant or advisor who understands the not-for-profit sector

• Ensure your governing documents support your tax-exempt claims

Need Help?

At Dolman Bateman, we help Australian NFPs manage their finances, secure tax exemption, and avoid ATO penalties.

📞 Call us today on (02) 9411 5422 to book a consultation with our expert advisors.

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Disclaimer:

The information provided in this article is general in nature and does not constitute personal financial, legal or tax advice. While every effort has been made to ensure the accuracy of this content at the time of publication, tax laws and regulations may change, and individual circumstances vary. Dolman Bateman accepts no responsibility or liability for any loss or damage incurred as a result of acting on or relying upon any of the information contained herein. You should seek professional advice tailored to your specific situation before making any financial or tax decision.