As part of the Federal Budget on 11 May 2021, the Australian Government unveiled adjustments to the administration requirements of not-for-profit entities that self-assess for income tax exemption. Starting July 1, 2023, non-charitable not-for-profit’s holding an active Australian Business Number (ABN) and seeking income tax exemption will need to submit an annual self-review return. Charities registered with the Australian Charities and Not-for-profits Commission (ACNC) are exempt from these new reporting requirements.
Why the change?
There is a common misconception that all not-for-profit organisations are automatically exempt from income tax, however they are only exempt if they satisfy Division 50 of the ITAA 1997. The primary aim of this initiative is to bolster trust and confidence in the tax system by ensuring that only eligible not-for-profit organisations benefit from tax concessions.
When is lodgement due?
While the annual reporting requirement came into effect from 1 July, the first return doesn’t have to be lodged until next tax time, being between 1 July and 31 October 2024. Early balancing entities will have to wait until July 2024 when the annual self-review return becomes available.
How do I complete the return?
The Australian Taxation Office (ATO) is currently working on formulating the return and necessary administrative infrastructure in collaboration with the not-for-profit sector. According to the ATO, the self-return will:
- Be straightforward to complete.
- Pose questions akin to those found in the existing self-review worksheets available on the ATO website.
- Prompt not-for-profit organisations to assess their purpose and activities against specific eligibility criteria for income tax exempt entities.
- Exclude financial inquiries except for an estimated income range to gauge the size of the organisation.
The return will be electronically submitted via the ATO’s online services for business (OSB) or online services for agents (OSfA) for those utilising a registered tax agent.
What happens if I fail to lodge?
An organisation’s income tax exemption status may be revoked where they fail to lodge their annual self-review return. Penalties may also be imposed under the ATO’s penalty framework for organisations failing to fulfill their lodgement obligations.
What steps can I take to prepare for lodgement?
To get ready for the submission of the annual self-review return, not-for-profit organisations should:
- Verify that the organisations ABN details are current.
- Ensure that myGovID and RAM authorisation have been set up for online services for business (OSB).
- Review the organisation’s governing documents and continue assessing its purpose, obligations and activities.
- Examine the existing income tax status worksheet for self-assessing not-for-profit organisations introduced by the ATO.
Should your organisation require assistance in navigating compliance obligations, including the annual self-review return, talk to your team at Roberts + Morrow. For more details about this reform, please visit the ATO website.
