Time for NFPs to tackle tricky tax task

From July 1 more than 150,000 non-charitable NFPs that self-assess as income tax exempt must comply with strict new reporting regulations.

The Australian Tax Office last year flagged changes requiring NFPs that have an ABN and are not registered with the Australian Charities and Not-for-profits Commission (ACNC) to complete an annual self-review to access their income tax exemption.

ATO assistant commissioner Jennifer Moltisanti has described the new reporting requirements as “the most significant change to the sector since the introduction of the ACNC in 2012.”

However, some experts fear many small, volunteer-run organisations lack the expertise needed to navigate the changes.

Organisations must lodge their self-review for the 2023-2024 financial year by October 31 to comply with the new reporting regulations.

The ATO said the reforms, which were first announced in the 2021 federal Budget, were designed to enhance trust and confidence in the sector by ensuring that only eligible NFPs access income tax exemptions, and that NFPs operate on a level playing field.

Under the new regime, NFPs must ensure that their constitution is up to date, their statement of purpose is compliant, and their policies fulfill relevant obligations.

Alternatively, some organisations may decide that registering as a charity is a better way to ensure they don’t lose their tax concessions.

Despite criticism the sector had been left in the dark about the changes, the ATO said it had consulted extensively on the design and implementation of the new tax regulations, working closely with not-for-profit sector representatives.

The tax office said it had also made extensive efforts to communicate the new reporting rules, including producing a webinar designed to help organisations navigate the changes.

In response to questions from Opposition charities spokesman Senator Dean Smith on the potentially negative impact of the changes during a recent Senate Estimates hearing, ATO second commissioner Jeremy Hirschhorn urged the sector to remain calm.

“My first piece of advice would be not to panic—to be calm and to approach this calmly,” said Mr Hirschhorn.

“The second piece of advice I would give is to go to our website and read the materials.

“The third piece of advice that I would give is that, if a charity is still worried about meeting its obligations, you should not be a stranger. You should contact the tax office and talk through the situation, and we will, of course be understanding to those who honestly engage.”

Mr Hirschhorn also wanted to reassure the sector the ATO was not trying to punish organisations who that struggle to comply with the new reporting requirements.

“I suppose the fourth point is that our focus at the start of every regime—but particularly a regime that affects the charity sector—is around education and support, not around enforcement.”

During the same Senate Estimates hearing, ACNC commissioner Sue Woodward indicated the ATO changes had prompted a sharp rise in the number of organisations applying for charity registration.

More than 1,115 organisations applied to be registered as charities in May, up from 651 during the same month last year.

“If you are a registered charity, you don't have to do that [ATO] reporting,” said Ms Woodward.

“Correspondingly, people are now realising that they are eligible to be a charity and therefore are applying.”

More information

Taxing time for NFPs

ATO not-for-profit tax strategy questioned

Volunteer-run NFPs face tax red-tape tangle

New tool takes the torture out of tax time for NFPs