Advice Summary: Prepare for tax exemption reforms for Not For Profits (NFPs) starting 1 July 2023. Self-assessing NFPs with an active ABN must lodge an annual self-review return to report income tax exemption eligibility. If a return is not lodged, they may become ineligible for an income tax exemption and penalties may apply under the ATO’s penalty framework. Review your operations, seek advice, and use resources to navigate these changes.
Not-for-profit organisations (NFPs) play a vital role in supporting our community. Many NFPs are endorsed charities registered with the Australian Charities and Not-for-profit Commission (ACNC), however there are many NFP’s who are not registered with ACNC. Currently, those not registered are required to self-assess as tax-exempt entities, to enjoy special tax treatment. Recent reforms will require self-assessing NFP’s to confirm eligibility annually.
Currently, NFPs falling into categories like community service, cultural, educational, health, employment, resource development, scientific, and sporting can self-assess their income tax exemption without reporting to the Australian Taxation Office (ATO).
From 1 July 2023, self-assessing NFPs with an active Australian Business Number (ABN) must lodge an annual self-review return. This return will include the information used to determine their eligibility for income tax exemption. This change aims to increase transparency and ensure accurate assessments of tax exemptions.
To facilitate a smooth transition, the ATO is in discussions with the NFP sector to understand the guidance and support needed. These consultations are expected to conclude in June, paving the way for the implementation of the changes.
The introduction of mandatory self-review returns significantly alters the compliance obligations for self-assessing NFPs. By formally reporting their eligibility for income tax exemption, organisations contribute to greater accountability and uphold the integrity of the tax system. The ATO will use the information provided in these returns to assess accuracy and identify discrepancies.
While these reforms may introduce new administrative burdens, they also offer an opportunity for NFPs to review operations and ensure compliance with eligibility criteria for income tax exemption. Undertaking a thorough self-review process will provide NFPs with a better understanding of their tax-exempt status and potential areas for improvement.
For more information on this change, please contact your local William Buck Business Advisor.