Q&A with Dan Saunders: Preparing NFPs for the 30 June 2026 Tax Exemption Deadline

With the 30 June 2026 deadline approaching, many non‑charitable NFPs need to ensure their governing documents properly align with the ATO’s self‑assessment requirements. To help clarify what must be included - and the common pitfalls to avoid - we spoke with Dan Saunders of Russell Kennedy. In this Q&A, Dan outlines the key clauses, compliance risks and practical steps NFPs should take now to stay eligible for income‑tax exemption.

A self-assessing income tax exempt NFP must include in its governing documents a proper Purpose statement – showing a “NFP category” but not a “charitable purpose”, it would usually include Activities it undertakes to fulfill that Purpose, and then must also have an appropriate not-for-profit (NFP) clause and winding up clause because, to be tax exempt, it must comply with its rules and apply its income and assets solely for the purpose for which it is established.

Generally, a self-assessing income tax exempt NFP would fall into one of 8 categories set out in Division 50 of the Income Tax Assessment Act 1997 (Cth) (Tax Act). The 5 most common NFP categories that qualify for income tax exemption are community service, sporting, employment, resource development and scientific organisations – the other 3 categories are most likely to require charity registration because each of these categories for NFP income tax exemption are also what’s known as charitable purposes, set out in the Charities Act, and so if a NFP has one of these purposes, usually it would be required to register as a charity in order to be endorsed by the Australian Taxation Office (ATO) as income tax exempt. Those other 3 categories are – cultural, educational, health organisations. Professional associations, established to promote a profession or occupation would usually be considered taxable NFPs, unless they can show they’ve been established for a charitable purpose and any other activities are simply incidental or ancillary to a main or principal charitable purpose.

Examples:  

• Community service organisations – they’re altruistic, established and operated for the well-being of others, not its members, including:
  • traditional service clubs (for example, Rotary and Lions)
  • pensioner or senior citizens associations
  • industry ombudsman.
• Health organisations – most will be charities because ‘advancing health’ is a charitable purpose – but may also include Private Health Insurers
• Employment organisations –
  • A trade union
  • Employee or employer association under the Fair Work (Registered Organisations) Act 2009
• Resource development organisations - established to promote the development of aviation, tourism or resources such as agricultural, aquacultural, fishing, horticultural, industrial, manufacturing, pastoral, viticultural and technology resources.
  • Industrial resources include building, mining, quarrying, shipping and transport, but don't include business and commercial resources (such as insurance, and services, such as surveying). Pastoral resources include infrastructure, facilities, plant and equipment, personnel, knowledge, expertise and skills relating to the raising of stock on rural properties.
• Scientific organisations – Established to advance science. Common ways of advancing science include research, exploration and teaching. Disseminating information may often be involved.
• Sporting organisations – established for the encouragement of a game or sport or animal racing (covered by Taxation Ruling 2022/2) – the local cricket, netball or football club.

Why is the 30 June 2026 deadline so significant, and what risks do NFPs face if their constitution or governing documents aren’t updated in time?

The deadline is significant because from 1 July 2023, non-charitable NFPs with an active Australian business number (ABN) self-assessing as income tax exempt - need to lodge with the ATO an annual NFP self-review return by 31 October each year.

NFPs must review their governing documents before completing the self-review return, to ensure they are answering all the questions accurately. If a NFP's governing documents don't have a NFP and winding up clause, then the governing documents must be updated to include these clauses.

To support NFPs to meet this requirement, the ATO has extended the due date by which NFPs must update their governing documents from 30 June 2025 to 30 June 2026. If a NFPs governing documents are not updated in this time the risk is the ATO will determine that they don’t meet the requirements to self-assess as income tax exempt and assess them as taxable, which may result in an income tax liability.

When reviewing constitutions ahead of the deadline, which clauses typically require the most attention — particularly regarding purposes, activities, NFP status and winding‑up provisions?

To demonstrate it operates on an NFP basis, a NFP is required to have clauses in its governing documents that prohibit distribution of income or assets to its members – both while it operates and when it winds up. The organisation needs to have sufficient controls in place to ensure members and other private persons don't receive the income, property or assets of the organisation (other than as reimbursement for services they have provided or for expenses incurred on behalf of the organisation). Where this requirement comes from is the Special Conditions in Division 50 of the Tax Act for most categories which state that the entity must: (a)  comply with all the substantive requirements in its governing rules; and (b)  apply its income and assets solely for the purpose for which the entity is established.

Example clauses:

Not-for-profit clause - 'The assets and income of the organisation shall be applied solely in furtherance of its Purpose and no portion shall be distributed directly or indirectly to the members of the organisation except as bona fide compensation for services rendered or expenses incurred on behalf of the organisation.'

Dissolution clause - 'In the event of the organisation being dissolved, the amount that remains after such dissolution and the satisfaction of all debts and liabilities shall be transferred to another organisation with similar purposes which is not carried on for the profit or gain of its individual members.'

In practice, where do NFPs most commonly fall short when articulating their purposes and activities, and how can they draft these clauses to clearly demonstrate eligibility for tax exemption?

I read many, many NFP clauses that only go half-way, they say income and assets can’t be given to members but don’t include the next part – which is that the income and assets must be used solely to further the Purposes of the organisation. Both parts must be included in the NFP clause.

And also, a non-charity NFP can’t have a ‘charitable purpose’ because then it would need to register with the ACNC to be income tax exempt, it can’t self-assess as it would be deemed to be an ACNC type of entity.  

What indicators does the ATO look for to confirm that an organisation is genuinely “not‑for‑profit,” and how should this be reflected in the governing documents?

NFPs are required to maintain governing documents that demonstrate they operate on a NFP basis, the governing document will be a Constitution, Articles of Association, a set of Rules or a Trust Deed.

The governing document must have and include clauses that prevent the NFP from distributing income or assets to members, both while it operates and when it winds up and also that state that income and assets must be applied solely to fulfill its purpose.

The ATO will review the NFP annual return and the answers provided, but may also wish to review the governing documents, the activities of the organisation, if they operate in Australia and then may ask to see accounting information, such as the balance sheet, profit and loss statements, annual financial returns and even audited financial statements, if the organisation has done these, to see where and how the organisation has been using its income or funding and donations.   

How should NFPs think about the relationship between ACNC registration, charitable purpose, and whether they should self‑assess or seek ATO endorsement?

Section 50-47 of the Tax Act states that if they are an “ACNC type of entity” because they have a “charitable purpose” then to be income tax exempt, they must be registered as a charity with the ACNC, they can’t self-assess at that point.

So NFPs with “charitable purposes” that meet the other requirements of a charity must be registered with the ACNC and then be endorsed by the ATO to be income tax exempt, this is no longer an option.

In your experience, when is ACNC registration advantageous, and when might it be unnecessary or inappropriate for certain NFPs?

A NFP will have to register with the ACNC as a charity, if it has a charitable purpose, & it’s also advantageous for the following reasons:

• Access to tax concessions through the Australian Taxation Office (ATO) such as:
  • income tax exemption,
  • Goods and Services Tax concessions, and 
  • Fringe Benefits Tax rebate. 
• Possible State tax concessions for stamp duty, payroll tax, and land tax.
• To access endorsement as a deductible gift recipient (DGR) but only if it has a charitable purpose which also qualifies as a DGR, because not all do.
• Being listed on the ACNC public register, which can improve public trust and confidence.
• Public recognition and confirmation as a charity.
• Transparency and accountability by being listed on the public register.
• Streamlining reporting only to the ACNC, rather than to Consumer Affairs Victoria and/or the ATO.
• No requirement to lodge the ATO NFP self-review annual return.
• Listing on the public register shows donors (if any) and the public that the entity meets high governance standards and exists solely for public benefit.

What are the key steps boards should take now to ensure their NFP is compliant ahead of the 2026 deadline - both from a governance and documentation perspective?

Review their Rules or Constitution. If a NFP's governing documents don't have a NFP and winding up clause, then the governing documents must be updated to include these clauses.

What misconceptions do you most often encounter when organisations assume they can self‑assess for tax exemption without understanding the underlying obligations?

Non-charitable NFPs self-assessing as income tax exempt – must lodge an annual NFP self-review return by 31 October each year to the ATO. This is a new reporting requirement and so the misconception is that to self-assess means no reporting or checks and balances and accountability and that is no longer correct. The other misconception is that if you have a charitable purpose you can still self-assess as income tax exempt without being registered as a charity – but that’s no longer optional – if an organisation has a charitable purpose and operates as a charity, it can no longer self-assess as income tax exempt, it must be registered with the ACNC and be endorsed as tax exempt by the ATO.

Based on recent matters, what issues typically arise when an NFP’s governing documents don’t align with its stated purpose or day‑to‑day activities?

We see what I call “mission drift”, so a strategic plan or current activities don’t actually align with the stated purposes of an organisation. This is why being registered with the ACNC with a charitable purpose subtype is very helpful because knowing the subtype registration and the charitable purpose, and having the purpose statement reviewed, keeps the mission of the organisation consistent with strategy and activities and this avoids mission drfit, or worse using income and assets of a NFP for unlawful purposes, such as distribution to members or for member benefits.  

If you could give one piece of practical advice to leaders of NFPs preparing for the 2026 deadline, what would it be to ensure their governing documents are fit‑for‑purpose and fully compliant?

Have the governing document reviewed by a lawyer familiar with charity law, particularly Division 30 and Division 50 of the Tax Act.

Dan will explore these issues further in the session 'Preparing for the 30 June 2026 Deadline: Updating Governing Documents for Self-assessing Income-Tax Exempt Not-for-profits (NFP)' on Wednesday, 25 February 2026, covering:

• What must be included in governing documents to meet exemption criteria under Division 50 of the ITAA 1997
• Reviewing constitutions, purposes & activities clauses, NFP and winding-up provisions for compliance before the 30 June 2026 deadline
• Should your NFP be registered? - Managing the relationship between ACNC registration, charitable purpose, self-assessment or ATO endorsement