Tax exempt status isn’t just a buzzword thrown around at tax time—it’s a powerful financial lever for both individuals and organisations across Australia. With the Australian Taxation Office (ATO) updating several rules and thresholds for the 2024–25 financial year, understanding tax exemptions is more important than ever. Whether you’re a charity, a not-for-profit, or an investor eyeing specific assets, knowing how to legally minimise your tax bill can have a real impact on your bottom line.
What Does ‘Tax Exempt’ Mean in 2025?
Being ‘tax exempt’ means you, your income, or your organisation are legally excluded from paying certain taxes. In Australia, this can apply to:
- Certain types of income (like government pensions or scholarships)
- Registered charities and not-for-profits
- Specific investment vehicles and superannuation contributions
In the 2025 financial year, the ATO has maintained its rigorous definitions and compliance checks, but has introduced digital-first processes for applications and reporting, making it easier to confirm and maintain exempt status.
Who Qualifies for Tax Exempt Status?
The eligibility for tax exempt status in Australia varies, but generally falls into three buckets:
1. Charities and Not-for-Profits
Registered charities and many not-for-profits (NFPs) are eligible for tax exemptions on income, GST, and some fringe benefits. As of July 2024, the ATO now requires all NFPs to lodge an annual self-review return to maintain their tax exempt status, a move designed to improve transparency and accountability. Examples include:
- Community sports clubs: Exempt from income tax if registered and operating primarily for community benefit.
- Health promotion charities: Can access both income tax exemption and GST concessions.
2. Certain Individual Incomes
Some types of income are tax exempt for individuals, such as:
- Government pensions (e.g. Disability Support Pension, some veterans’ payments)
- Scholarships and bursaries (if meeting ATO criteria)
- Genuine redundancy and early retirement scheme payments (up to a cap, indexed annually)
For 2025, the tax-free cap for genuine redundancy payments has increased in line with inflation, now sitting at $12,900 plus $6,550 for each completed year of service. This update offers greater relief for workers impacted by restructures or economic shifts.
3. Investments and Superannuation
Some investment earnings and superannuation contributions enjoy tax exempt treatment. For example:
- Superannuation funds: Retirement-phase accounts are generally exempt from tax on investment earnings (subject to the $1.9 million transfer balance cap for 2025).
- Capital gains: The sale of your main residence remains tax exempt for most Australians, provided it meets the ATO’s criteria.
Recent policy changes mean the ATO will be cracking down on incorrect claims of main residence exemption, using data matching with state land titles offices.
How to Apply and Maintain Tax Exempt Status
For organisations, applying for tax exempt status requires registration with the Australian Charities and Not-for-profits Commission (ACNC) and lodging the appropriate forms with the ATO. The 2025 updates have digitised much of this process, reducing paperwork and turnaround times. Key steps include:
- Registering with the ACNC (for charities)
- Lodging an annual self-review return
- Keeping detailed records to substantiate your activities and income sources
For individuals, ensuring you correctly report exempt income on your tax return is critical. The ATO’s MyGov platform now clearly separates exempt and non-exempt income, and pre-fills much of the relevant information for pensions and redundancy payments.
Real-World Examples and Common Pitfalls
Consider a local footy club that’s registered as a not-for-profit. In 2025, it must lodge an annual self-review to maintain its tax exempt status. If it starts running a commercial bar for profit, some of its income could become taxable—underscoring the need for clear boundaries between community and commercial activities.
For individuals, an engineer made redundant in 2025 could receive a $45,000 payout. With the new tax-free threshold, a portion is exempt, but any amount above the cap is taxed at marginal rates. Getting this calculation right can save thousands or prevent an unexpected tax bill.
Maximising the Benefits of Tax Exemption
To make the most of tax exempt opportunities in 2025, Australians should:
- Check eligibility for new or updated exemptions (especially redundancy and superannuation caps)
- Maintain accurate records and lodge required forms on time
- Separate personal and business activities to avoid breaching exemption rules
- Review investment strategies to leverage main residence and superannuation exemptions
The Bottom Line
Tax exempt status is more than a technicality—it’s a practical tool for charities, not-for-profits, investors, and everyday Australians to keep more of what they earn. With 2025’s digital enhancements and policy tweaks, the process is smoother, but the need for attention to detail is greater than ever. Take the time to understand your eligibility and obligations, and use tax exemption as part of your broader financial strategy.
