ATO urged to redesign NFP self-review changes

Senator Smith’s comments came as a Senate inquiry he instigated and chaired was today scheduled to hand down its report into the implementation of the new guidelines.

The changes introduced by the ATO in July require NFPs with an Australian Business Number (ABN) to lodge an annual self-review return or risk losing their income tax exemption.

Speaking to the Community Advocate ahead of tomorrow’s Not-for-Profit Agenda news webcast, Senator Smith said he would recommend in the Senate report that the Albanese government and ATO acknowledge the sector’s frustration and confusion over the tax changes and redesign them.

“I propose to be bold; I propose to put up an alternative pathway,” he said.

“In the interests of complete transparency, I think there are some questions about why more care was not taken around the design of this particular tax integrity measure.”

Representatives from sector organisations ranging from the Community Council for Australia and the Queensland Law Society to Stonnington Country Dancers, Agricultural Shows Australia and the Australian Multicultural Action Network relayed their concerns over the tax changes in a public hearing of the Senate Economics References Committee last week.

They outlined complaints including the lack of communication from the ATO, the complexity of the self-review process, the additional impost and stress for small volunteer-run organisations, and the increased costs to NFPs forced to seek expert legal advice.

The ATO pushed back on many of the concerns, arguing the changes were simple to execute, had been well communicated, were introduced after widespread consultation, and were designed to ensure transparency and integrity, not to raise revenue.

Under questioning in the hearing from Senator Smith, however, the ATO admitted that it was on track to fall massively short of its target of having more than 155,000 eligible NFPs lodge a self-review tax return by March 31, with just 11,000 having done so to date.

The ACNC has seen a surge in applications from NFPs seeking to be registered as charities, because charities are exempt from the changes.

Senator Smith said he agreed with the ATO that the changes were necessary to provide more robust transparency but was convinced there must be a better way of achieving the desired outcome.

“I think the principle of the integrity measure is necessary. I don’t think anyone has seriously disagreed with that,” said Senator Smith.

“I think that everyone has tried to approach this with the best of intentions, including the Australian Taxation Office, but for a whole variety of reasons it hasn’t landed where it needs to land and I think this would be a very simple and easy thing for the government to say, ‘Okay, pause, we’ve heard what the community sector has said, let’s just revisit how we do this.”

Senator Smith said of particular concern were questions over whether NFPs should be required to meet a financial threshold before being required to submit a self-review return, and what that threshold should be. He also highlighted the question of whether the ATO or the ACNC was best placed to administer the process.

He also acknowledged that decisions made by previous Coalition governments had contributed to the current situation.

“I absolutely respect that, but I think where we are up to at this particular point in time, with just 11,000 of 155,000 organisations having met their requirements, I think we can easily go back to the drawing board on this particular initiative, take the pressure off, take the fear out of what many not-for-profits are experiencing at the moment.”

More information

Sector vents frustration at ATO tax changes in Senate hearing