Did you know that over 60,000 not-for-profit (NFPs) across Australia self-assess their income tax-exempt status each year?
With that responsibility comes the critical requirement of maintaining proper governing documents.
In a recent move, the Australian Taxation Office (ATO) has extended the deadline for certain NFPs to meet these governance obligations—providing these organisations with more time to comply, without facing unnecessary taxation consequences.
Why Do Governing Documents Matter For NFPs?
To qualify for income tax exemption as a self-assessing not-for-profit, organisations must ensure their governing documents include specific clauses.
These clauses must state that no income or assets will be distributed to members, whether the organisation is operational or winding up.
This requirement ensures public and regulatory confidence in how NFPs manage community resources.
Failing to meet this obligation may result in the loss of tax exemption and subsequent ATO compliance actions.
Key Change Announced By ATO
In June 2025, the ATO extended the due date for updating NFP governing documents from 30 June 2025 to 30 June 2026. The extension is available to organisations only if they have not made any distributions of income or assets to members.
Organisations must answer ‘Yes’ to the relevant question in their self-review return, confirming that their governing documents prohibit such distributions. By doing this, they can secure the extended deadline.
If an organisation answers ‘No’, it will be treated as taxable. The ATO will then follow up to determine whether the NFP is still eligible for income tax-exempt status.
What You Need To Do: Step-by-Step
To ensure compliance and avoid penalties, NFPs should take the following steps immediately:
- Review your current governing document. Ensure it includes clauses that prohibit distributions to members.
- Update the document if those clauses are missing or unclear.
- Answer ‘Yes’ in the NFP self-review return if your governing document meets the requirement.
- If your governing document does not comply, expect to be treated as taxable, and the ATO may reach out to reassess your tax-exempt status.
Here is a clear breakdown of the ATO’s updated expectations:
| Requirement | Description |
|---|---|
| Prohibited distribution clauses | Must exist in the governing document |
| Eligible organisations | Only those that haven’t distributed income or assets to members |
| Deadline to update documents | 30 June 2026 |
| Action required in self-review return | Answer ‘Yes’ to the governing document compliance question |
| Consequence of answering ‘No’ | Organisation becomes taxable, ATO will confirm tax-exempt eligibility |
Understanding Governing Document Requirements
Your governing documents must contain specific clauses that satisfy ATO requirements. These clauses should clearly state that your organisation cannot distribute income or assets to members.
The prohibition must apply during two distinct periods:
- While operating – normal business activities
- During winding up – dissolution processes
Clear language prevents misinterpretation. Ambiguous wording could result in ATO rejection of your compliance claims.
Common Document Types Requiring Updates
- Constitution documents
- Rules and regulations
- Trust deeds
- Incorporation certificates
- Memorandum and articles
Each document type has specific requirements. A professional review ensures all documents meet current standards.
Steps To Update Your Documents
Updating governing documents involves several important steps:
- Step 1: Review Current Documents – Examine existing clauses for compliance gaps. Identify areas requiring modification or addition.
- Step 2: Draft Necessary Changes – Create clear, unambiguous language that meets ATO requirements. Ensure consistency across all documents.
- Step 3: Legal Review – Have qualified professionals review proposed changes. This prevents future compliance issues.
- Step 4: Member Approval – Present changes to members for approval. Follow your organisation’s amendment procedures.
- Step 5: Update Official Records – Submit changes to relevant regulatory bodies. Maintain copies of all updated documents.
Tax agents in Melbourne can help prepare these documents.
Why You Shouldn't Wait?
Despite having an extra year, the ATO strongly recommends updating documents immediately. Several clear reasons support this advice:
- Avoid last-minute stress when the 2026 deadline approaches
- Provide member assurance about proper governance
- Demonstrate community responsibility through appropriate management
- Complete the task whilst you have adequate time for a thorough review
Procrastination often leads to rushed decisions. Rushed decisions can result in inadequate documentation that fails to meet ATO requirements.
Perfect Timing With AGM Season
Many NFPs are currently preparing for their annual general meetings. This timing creates an ideal opportunity to address governing document updates.
AGM preparation typically involves:
- Reviewing organisational documents
- Assessing compliance requirements
- Planning future governance strategies
- Communicating with members about important changes
Combining governing document updates with AGM preparation creates operational efficiency. Members can review and approve necessary changes during scheduled meetings.
Consequences Of Non-Compliance
Organisations that fail to update their governing documents face serious consequences.
Loss of tax-exempt status means:
- Paying income tax on all earnings
- Losing eligibility for certain grants
- Reduced donor confidence
- Potential regulatory penalties
The financial impact can be substantial. Prevention through proper documentation is always more cost-effective than dealing with tax obligations later.
Need Help Updating Your Governing Documents?
At Leading Tax Experts, our qualified and experienced team helps not-for-profits stay compliant with ATO requirements—on time and without stress.
If you’re unsure whether your governing documents meet the latest standards or need help submitting your self-review return, our best tax accountants in Melbourne have got you covered.
Our services are quick, affordable, and tailored to your needs. From guiding you step-by-step to helping you lodge tax online, we make the process simple and clear.
