Changes to self-assessing as income tax exempt

The Australian Tax Office (ATO) has made changes to requirements for non-charitable not-for-profit organisations that self-assess as eligible for income tax exemption, for example, sporting organisations.

These changes do not affect ACNC registered charities.

For the 2023-24 financial year and future financial years, self-assessing not-for-profit organisations (NFPs) with an active ABN will be required to lodge an annual self-review return, in order to access the income tax exemption.

Criteria & conditions

The ability to self-assess as income tax exempt is only available to NFPs that meet specific criteria and conditions, including that:

they fall under one of the specific categories listed in Division 50 of the Income Tax Assessment Act 1997, such as community service organisations or sporting organisations; and
they are not charitable NFPS and are not registered (or eligible to be registered) with the ACNC.

The annual reporting requirement is designed to enhance transparency and integrity in the system, by ensuring only eligible NFPs access income tax exemption.

ATO guidance

The ATO has provided a new web guidance on the changes for NFPs (refer to link below).

The Guidance clarifies that the self-review return will:

include questions like those provided in the current self-review worksheets. You can use these worksheets (refer to link below) to self-assess your tax status now;
guide NFPs to consider their purpose and activities against specific eligibility requirements of an income tax exempt entity; and
not include questions that are financial in nature, however, one question will relate to NFPs estimating their income range to indicate the size of the organisation.

When does the return need to be lodged?

The first return will need to be lodged between 1 July and 31 October 2024 (or in a later, approved substituted accounting period), and can be done so using the ATO online services. In future years, NFPs will be able to confirm or amend information provided to them on a pre-filled self-review return.

When happens if an NFP fails to lodge?

NFPs may become ineligible for an income tax exemption if a self-review return is not lodged each year and penalties may apply.

What happens if an NFP is deemed ineligible for income tax exemption?

The NFP will most likely be required to pay income tax for the relevant financial year. The ATO have advised they are generally taking a practical approach in the transitional phase, and will be focussing on the 2023-24 financial year rather than looking back to potential past non-compliance. However compliance action may be taken if deliberate tax evasion or fraudulent behaviour is identified.