New Income Tax Reporting Requirements for Not-For-Profit Sector

ATO encourages NFPs to get ready for new return

From 1 July 2024, non-charitable not-for-profits will be required to lodge an annual NFP self-review return.

Recently the ATO reminded not-for profits about the new reporting requirements that came into effect from 1 July 2023 where non-charitable not-for-profit entities with an active ABN will be required to lodge an annual self-review return to access income tax exemption and thereby confirm their tax exemption status.

This applies to around 150,000 NFPs who currently self-assess as income tax exempt.

The new reporting requirement was introduced in the 2021–22 Federal Budget to enhance transparency and integrity in the tax, super and registry system by ensuring only eligible non-charitable NFPs access that income tax exemption.

While the due date is in October, there are things you should do now to make sure you are ready. We also recommend not waiting until the last moment to report, you can report from as early as 1 July.’

This new reporting requirement will help drive a level-playing field, giving confidence to not-for-profits that only organisations who are entitled to concessions can access those concessions.’

Non-charitable NFPs who have an active ABN can get ready now by:

  • conducting an early review of their eligibility by using the ATO’s guide
  • checking all their details are up to date, including authorised associates, contacts and their addresses.
  • reviewing their purpose and governing documents to understand their NFP type.
  • setting up myGovID and linking it to the organisation’s ABN using Relationship Authorisation Manager.

When it comes time to lodge, NFPs can use Online services for business which lets organisations manage their reporting at a time that is convenient to them.

For NFPs that have engaged a registered tax agent, their agent can also lodge
What is a Not-for-Profit?

It’s a commonly held myth that not-for-profits are automatically exempt from income tax. This is incorrect. Income tax exemption for not-for-profits is not an automatic entitlement and not all not-for-profits qualify.

Income-tax exempt entities are often altruistic in nature with their purposes benefiting the broader community, rather than primarily the interests of their members. The types of income tax exempt entities are outlined in Division 50 of the Income Tax Assessment Act 1997. If an organisation has a charitable purpose, it must meet the Australian Charities and Not-for-profits Commission registration criteria and be endorsed by the ATO to be income tax exempt.

A not-for-profit may qualify for income tax exemption if it’s established and operating on a not-for-profit basis and has purposes that meet the requirements of exempt entities outlined in tax law. A not-for-profit that is not exempt from income tax, is taxable. This means they may need to pay tax on taxable income.

Not-for-profits that self-assess income tax exemption must meet the following requirements, tests and conditions:

General requirements

  • Is established and operating on a not-for-profit basis.
  • Operates for public benefit, rather than primarily the interests of its members.
  • Does not have a charitable purpose.
  • Has purposes that fall within a type of income tax exempt entity – outlined in Division 50 of Income Tax Assessment Act 1997.

Meet at least one of 3 tests

  • Operates in Australia.
  • Is a deductible gift recipient.
  • Is an entity prescribed in tax law.

Special conditions must be met

  • comply with all substantive requirements in its governing rules.
  • Apply income and assets solely for the purpose for which it is established.

The new reporting requirements provide a timely opportunity to review purpose and activities to ensure entities are in compliance with the relevant income tax laws.

For more information, please contact WWA Directors, Paul Marini or Philip MacIsaac or please feel free to call us on 03 9274 0600.

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