Volunteer-run NFPs face tax red-tape tangle

From July 1, more than 150,000 non-charitable NFPs that self-assess as income tax exempt must comply with strict new reporting regulations or risk losing their eligibility for tax breaks.

The ATO 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 or face significant penalties.

Josh Chye, partner and head of tax at accounting and consulting firm HLB Mann Judd in Melbourne, said thousands of small NFPs across the country face being strangled by red tape as they struggle to comply with the new rules.

“We anticipate these changes will affect smaller organisations, particularly those run by volunteers,” he said.

“It’s unlikely these organisations currently have the appropriate governance and procedures in place to lodge an annual self-return review.”

Mr Chye said the tax changes were designed to increase transparency within the sector, but the risk of non-compliance was high, and an organisation could lose its income tax exempt status if it does not self-report.

“Additionally, non-compliance could have a snowball effect in which eligibility for other tax concessions is also denied, such as the fringe benefits tax (FBT) rebate.”

ATO assistant commissioner Jennifer Moltisanti has described the new reporting requirements as “the most significant change to the sector since the introduction of the Australian Charities and Not-for-profits Commission (ACNC) in 2012.”

However, as reported recently by the Community Advocate, organisations and individuals have been largely kept in the dark on their opportunity to comment on the changes, which have been communicated as a fait accompli by the ATO.

A consultation process opened on March 12 to provide organisations and individuals with the opportunity to give feedback on the proposed changes until April 9 has received little publicity, a situation slammed by Emeritus Professor Myles McGregor-Lowndes of the Australian Centre for Philanthropy and Nonprofit Studies (ACPNS).

“This consultation is not the first time that targeted not-for-profits and volunteer office bearers have been able to formally respond to the policy, although there have been limited opportunities for peak bodies and others to have some input into implementation of the measure,” he said.

“It would have been beneficial to all concerned if the policy debate had occurred at the time of the 2021–22 [federal] budget rather than just weeks before the self-assessment return was proposed to be implemented.”

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, and had made extensive efforts to communicate the changes and steps organistions needed to take ahead of the tax changes.

Mr Chye, however, agreed with Professor McGregor-Lowndes that discussions and information released since Canberra proposed the changes had been limited.

“Additionally, the specifics of the self-review 'return' are yet to be released.”

Mr Chye conceded, however, that the ATO had announced the changes well ahead of time.

“We have seen many established organisations already taking steps to ensure they are compliant with the self-reporting regime,” he said.

“Nonetheless, a more collaborative approach from the ATO may have been helpful for smaller organisations seeking to appropriately address these changes.”

Mr Chye said the tax changes should prompt many organisations to take stock of their current activities and consider their strategy for the future.

“NFPs that are considering new strategies around funding or operating should engage with their advisers to ensure they continue to be eligible for their tax concessions,” he said.

More information

Taxing time for NFPs