Tax changes spark NFP surge in charity registrations

There were 6,286 NFPs applying to register as a charity in 2023-2024 – a 14% increase on the previous year and the highest number since the ACNC was established in 2012.

The surge led to processing delays as long as three months.

The increase in applications comes after the Australian Tax Office (ATO) introduced new rules in July, requiring NFPs with an Australian Business Number (ABN) to lodge an annual “self-review” tax return or risk losing their income tax exemption. Charities are exempt from the requirement.

The changes, affecting more than 155,000 NFPs - have sparked widespread angst in the sector and led to a Senate inquiry instigated by Opposition Charities Minister Senator Dean Smith.

In its submission to the inquiry, ACNC Commissioner Sue Woodward predicted the number of registered charities could increase by as many as 15,000 because of the new tax rules.

“If projections about the number of NFPs that will need to register with the ACNC are correct, we may see up to a 25% increase in the number of registered charities (from a total of about 60,000 to, over time, about 75,000),” said Woodward.

The regulator has hired 25 temporary staff, (co-funded by the ATO), to manage the increased workload.

“We expect that the significant increase in the number of small, volunteer run charities will also lead to an increase in phone and online enquiries regarding ongoing obligations, potentially resulting in a flow through increase in our compliance and enforcement work,” said Ms Woodward.

“We are considering how we can meet this demand efficiently, having regard to our current resourcing.”

In March 2024, the ACNC began asking organisations applying to register as charities if they were doing so because of the new ATO guidelines. Between April and June 2024, more than 947 applications (44% of total applications) indicated they were lodged due to the ATO changes.

“This trend has remained stable from July to September 2024,” said Ms Woodward.

An ACNC analysis of phone and email enquiries found that:

• between 1 April and 19 August, the regulator received 489 enquiries relating to the ATO's new reporting requirements, or 4% of all inquiries.

• 78% were from unregistered NFPs, with most seeking help to determine their eligibility to register as a charity and how they should go about it

• 10% were from charities seeking to re-register after previously having their registration revoked and were looking to re-register because of the ATO changes

• 12% were from registered charities clarifying whether the changes applied to them

Ms Woodward said in the ACNC submission that the regulator anticipated that a proportion of the organisations lodging the self-assessment form with the ATO would indicate that they have, or may have, a charitable purpose or that they are unsure.

“As a result, we expect that this escalation in our registration workload will continue.”

Criticism of the new tax guidelines has largely focused in the impact on thousands of smaller, groups which lack the resources to cope with the increased regulatory burden, a concern acknowledged by Ms Woodward in the ACNC submission.

“We also expect that these charities will require ongoing support to meet their obligations, as our past experience has shown that small, volunteer run organisations often require additional support,” she said.

“For example, our data shows that small charities were twice as likely to submit their 2023 Annual Information Statement late when compared to large charities.”

The ATO said more than 10,000 self-review returns have been lodged, with that number continuing to climb.

Contrary to reports of widespread sector frustration and uncertainty, ATO assistant commissioner Jennifer Moltisanti said many organisations had embraced the new reporting requirements, which she said were introduced to ensure transparency and integrity within the sector.

The inquiry into the new ATO tax guidelines for NFPs by the Senate Economics References Committee is due to report on its findings by October 31.

More information

ATO denies NFP self-review changes not worth the effort

Senate to probe impact of ATO tax changes on NFPs

Tax office rules out simplifying new reporting rules

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